$300K Retirement Plan for High Net Worth Individuals
Background: Meet Charles and Brenda
Charles and Brenda are a high-net-worth couple who had considerable wealth throughout their working years. Being a surgeon Charles had earnt a sizeable salary throughout his working life, which underpinned the family’s lifestyle needs and gave them free cashflow to invest.
Over time, they acquired 16 investment properties, generating considerable equity but also introducing a layer of complexity to their financial situation, including significant debt, high personal taxable income, and intricate ownership structures across multiple entities.
As they approached retirement, Charles and Brenda wanted clarity around how best to transition their wealth from accumulation to income generation.
Key Results at a Glance
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Retirement Income:On track to achieve $300,000 p.a. net retirement income
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Super Balane:Almost doubled super value in 7 years
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Wholesale Investor:Qualified as wholesale investors, unlocking access to exclusive opportunities
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Property:Focused strategy to minimise tax on sales of properties
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Insurance :Saved over $29,000 annually in insurance premiums
Why Did They Seek Advice?
- Assess the feasibility of generating between $20,000 and $25,000 per month net in retirement income, indexed to inflation.
- Evaluate how different income levels would impact the sustainability of their wealth and guide asset allocation decisions.
- Develop a clear, staged retirement plan that allows flexibility based on income needs and market performance.
- Review and optimise superannuation contributions and drawdown strategies to support the desired income level.
- Refine insurance cover to reflect their current risk profile and reduce unnecessary costs.
Strategies Implemented
In early discussions with Charles and Brenda, we focused on understanding their financial priorities, lifestyle aspirations, and risk tolerance.
Their 16-property portfolio presented both an opportunity and a challenge: substantial equity, but also large debt, multiple entities, and significant tax considerations.
Through in-depth discussions and multiple meetings, we collaborated with Charles and Brenda to determine an appropriate sell-down order for their properties based on their individual perspectives. This process ensured that their asset portfolio aligned with their retirement income needs.
We also worked closely with their accountant and seek to find solutions we think work for their financial plan and then rely on their Accountants ultimate tax advice.
Retirement Planning:
- Initially targeting a monthly income of $25,000, we conducted a thorough review to assess their ability to retire comfortably at income levels of $15,000, $20,000, and $25,000 per month.
- To achieve their retirement goals, our strategy involved transitioning a portion of their wealth from property holdings and diversifying it into other asset classes that could provide a steady income stream over time.
- By implementing our strategic steps, we identified that Charles and Brenda were well-positioned to meet their income needs at their desired levels.
- The plan also allowed Charles to transition into retirement in line with his preferences.
- Furthermore, they had the added comfort of having total assets in excess of their needs, providing them with financial security and peace of mind.
Investment Advice:
- Identified several tax-effective opportunities to maximise their investment potential by utilising their SMSF, family trusts, and a bucket company.
- To reduce debt and boost their superannuation balance, we implemented a focused strategy.
- While traditionally considered 70% balanced investors, we recommended a 10% tilt towards defensive assets for their non-property assets, resulting in an investment allocation of 60% growth investments and 40% defensive assets.
- As part of this, we advised different allocations for the various entities they invest through, to help optimise the overall tax outcome.
- This approach provides them with a far greater diversification than they had, more liquidity to meet their income and lump sum needs, and less single asset risk.
- Recognising their financial sophistication and experience, Charles and Brenda qualified as wholesale investors, allowing them access to a broader range of investment opportunities not typically available to retail clients.
- Advised investing via platforms, direct equities, ETFs, and exclusive wholesale investments to optimise cost, access, and returns.
- Responding to their interest in further diversification, we explored the option of contributing funds to our Managed Discretionary Account (MDA) service, enhancing the overall investment allocation.
- The broader portfolio includes a mix of direct investments with product providers, listed share market assets such as cost-effective ETFs, and professionally managed investments held on platforms that offer access to high-quality managers at competitive fees.
Property Advice:
- A sell-down strategy was devised for their property portfolio, considering factors such as capital gains tax implications, rental income, maintenance requirements, deductibility, and simplification of their trusts to reduce accounting costs.
- Retained an apartment block of 8 units in line with Charles and Brenda’s preference to generate ongoing rental income during retirement, supporting their long-term cash flow needs.
Tax Advie:
- To manage tax implications, we structured the sell-down strategy in a way that prevented their income from exceeding their required levels.
- Any excess income generated through capital gains was directed to their bucket company, optimising tax efficiency and cash flow management.
- Based on our projections, we determined that Charles and Brenda would need to utilise their bucket company to fund their cash flow from the 2024 to the 2026 financial year.
Superannuation Advice:
- After determining the sell-down order for their properties, we focused on identifying the maximum amount they could contribute to their superannuation accounts, considering the tax efficiency of this investment vehicle.
- For concessional contributions, we advised them to contribute $25,000 each year (now $27,500), taking advantage of the tax benefits available, as long as they were under the age of 65.
- These contributions were estimated to save the couple $6,000 per year in tax, which could be redirected towards boosting their retirement savings.
- Planned for the transition to account-based pensions upon Charles’s retirement, allowing them to draw a flexible, tax-effective income stream that exceeded the legislated minimums and aligned with their target lifestyle.
- This approach allowed them to draw from the excess accumulation balance they would have, ensuring flexibility and meeting their desired income levels above the minimum required.
- Projected that with strategic contributions and investment performance, their superannuation balance would nearly double in 7 years.
Insurance Advice:
- Although Charles and Brenda no longer required insurance from a purely financial standpoint, we recommended retaining a level of cover to protect against unforeseen risks such as market volatility and rising interest rates while they continued to generate income.
- Level premium policies that have been held for some time offer long term accrued savings, compared to equivalent cover available in market today and were affordable for the linked benefit
- As part of optimising their coverage, we recommended cancelling two of Charles’s life and trauma policies and reducing Brenda’s life and trauma cover to $250,000.
- Implementing these changes would result in a significant reduction in premiums, from $60,216 to an estimated $31,080 (cost saving of $29,136).
Outcome and Benefits
- Charles and Brenda can sustainably draw $25,000/month net, with confidence in long-term affordability
- Strategic contributions and asset allocation nearly doubled their super over 7 years
- Sell-down plan and structure use minimised tax liabilities and improved cash flow
- Diversified from property into accessible, lower-maintenance investments
- Retained necessary cover while reducing premiums by $29,136 annually
- Simplified structures and clarified ownership to support future estate planning
Key Takeaway
Charles and Brenda’s journey demonstrates the power of bespoke financial advice for high-net-worth individuals. With significant property assets, complex structures, and a high income target, they needed a coordinated, forward-thinking plan.
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Important Note
Produced with our client’s permission. Names within this case study have been changed to protect the client’s right to privacy. The content of this case study has been based on a real-life client. Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.
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