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and receive your complimentary eBook

Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

Leaving the workforce and providing for your family

Preparing to Retire – About the Client, their Concerns, Need and Opportunities 

We recently provided advice to a couple in their 60s where the husband was still working, however, was also looking to retire in the not too distant future.  His wife, who was already retired, spent a lot of their savings over the years on improving their property whilst aiding their adult daughter and other relatives whenever they could.

Why they sought advice

With the husband preparing to retire they came to us wanting to know when he would be in a position to retire. Along with this, the clients also wanted to understand the options available to them that might help improve their financial situation during retirement whilst continuing to assist their daughter however they could.

They lived on a substantially sized block and one option they had considered in the past was to add another extension to their property where their daughter and her family could live, another option was to downsize their current residence. They were interested in finding out how these decisions might impact their financial position and the husband’s ability to retire.

Benefits of our advice

By seeking out our advice, these clients were set up to benefit in the following ways:

  • Through the implementation of a variety of strategies, which included taking a payment from super to pay back personal debt; Recasting their pension each year; contributing the maximum allowable amounts to Super, and reducing the husband’s life insurance over time, they would increase their financial assets at retirement by 10%.
  • We provided clarity around their situation by identifying when the Husband could potentially retire given the different scenarios considered. This gave them greater insight and clarity of the impacts their decisions would have on their retirement situation. Due to our advice, we showed them that our recommendations would allow him to retire 3 years earlier.
  • We identified an appropriate Superannuation platform that was also cost-effective ultimately saving them almost $700 p.a.
  • Illustrating their position gave them the peace of mind they needed to be confident they could afford the retirement lifestyle they wanted.

Our advice

As a start, we prepared financial models which projected their financial position going into the future, assuming they simply carried on as they currently are. Doing this, provided us a baseline to under the impact that any decision or strategy implemented would have on their situation.

Looking at their current position, our analysis suggested our client might be able to retire by the time he was age 75.5, with the funds they’ve accumulated potentially lasting to age 90.

The first items that we overlaid into their situation were pieces of advice that we believed should be implemented regardless of their larger property considerations, such as taking a payment from super to pay our credit card debt, guaranteeing the equivalent of a very good rate of return; recasting their pension each year; contributing the maximum allowable to super; and implementing a strategy to reduce the life insurance on the husband over time to save on the premiums, though keeping the cover in line with their needs. These recommendations helped to improve their financial situation, providing them with potentially 10% more in financial assets by retirement.

Next, we considered an option of the daughter and her family moving into a newly built extension of our client’s home. While this solution is not typical, they have a very close family connection, a desire to be closely involved in the upbringing of their grandchildren. We discussed this option at our initial meeting, and they discussed it as a family prior to us preparing the plan and were interested to understand how it could work as a potential scenario. We had previously identified that the client’s saw their home as inheritance for their daughter, along with them believing that it would offer them all a better quality of life. This option would save the need to downsize their home, which was not an option they were enthused by, though wanted to explore.

Considerate of the above, we suggested the option of their daughter selling her property, buying in to 50% of their property and then with the proceeds, the client’s build the extension and put the rest away for their retirement savings. The results indicated that this might help the husband retire by age 72.5, or three years earlier, while benefiting their daughter by giving her exposure to a property they believe is well positioned for future growth, along with them being able to provide her assistance with caring for their grandchildren and in the long term, provide continuity for her family, when the asset is ultimately passed on. In this case, we also recommended our clients seek legal advice if they choose to follow this option, as a breakdown in marriage could lead to a massive disruption for all, which was a major negative of the strategy. As part of our projection process, we compared the above strategy against how they are currently tracking, and as you can be see in the following graph, this leads to a more favourable outcome:

Our last assessed option was a much simpler downsize, selling their property and purchasing something cheaper for retirement. The results in this case were the same, allowing the husband to retire by age 72.5 on the desired level of income they want. This option, however, will result in them having to make a significant lifestyle decision that at this stage is difficult for them to seriously consider. Similar to the above, this scenario played out is illustrated as follows:

Along with all of the scenarios analysed, we also identified that our client had a superannuation product through a provider that now had a new product on offer that had all of the same features of their existing account however was offered a cheaper price. We recommended this to them as this would help save them almost $700 a year.

Produced with our client’s permission

 

GENERAL DISCLAIMER:

The content of this case study has been based on a real-life client and is intended to be general information only. You should not rely on this for your own personal circumstances as it is not considerate of your situation. Each person should consider its appropriateness having regard to these matters or obtain relevant professional financial advice before making any financial decisions.  Examples are illustrative only. Each person should obtain any relevant professional financial, taxation and social security advice before making any financial decisions.

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