A Yield Client Case Study 
Est. $16,500 Age Pension, compared to $0 on current plan
Living in home worth $1m v $650K on current plan
Equal financial outcome for estate at age 90
Using Downsizer contribution to super to invest tax-free
Est. $16,500 Age Pension, compared to $0 on current plan
Living in home worth $1m v $650K on current plan
Equal financial outcome for estate at age 90
Using Downsizer contribution to super to invest tax-free
Christine and Michael came to us looking for financial advice, as their current financial circumstances had them running out of money, which meant that they would no longer have available funds for the next year if something was not done about it.
The couple was primarily interested in reviewing the longevity of their total assets and how they could still provide for themselves past their current age of 77.
Introduction
Their assets included $57,126 in cash and super, which they knew would not be enough to continue to provide for them, but they also owned their primary residence in the suburbs of Melbourne’s North and a holiday home in Barwon Heads worth a combined value of approx. $1,600,000.
Despite the couple’s low financial assets for meeting income needs, their holiday home meant that they were not entitled to receive any Centrelink benefits.
The holiday home was a much-loved family location with a long history, so the couple was motivated to consider all options.
One thing they had determined was that the house they lived in was not going to be suitable long term due to stairs and they had decided to sell and downsize at some point to a smaller and cheaper home. They were resolved to do this, regardless of whether our advice was to sell the holiday home.
To help Christine and Michael, we ran a variety of projections to provide clarity on how they could reposition their assets to meet their lifestyle needs and provide the security they were looking for in the future.
Overview
In our financial projections, we saw the sale of the Barwon Heads property as necessary to provide Christine and Michael with the funds they needed going forward.
Because the property had been owned for a long time (it was actually inherited shortly after capital gains tax was introduced in 1985), we identified that the sale would incur a large amount of capital gains tax, however, our analysis showed that this would be the most important option available to the couple’s financial future and would comfortably provide an income stream for the rest of their lives.
We identified that after selling and funding the tax implications, Michael & Christine would become eligible to the Centrelink Age Pension for a yearly payment of an estimated $4,700.
This scenario, where they sell the holiday home but keep their primary residence or home of equivalent value, saw them with $865,172 of financial assets and $1,982,362 of total assets remaining by the time they are age 90, suggesting they would have more than enough at this point.
Whilst the couple realised that selling the Barwon Heads property was most likely necessary to fund their retirement, they also wanted advice on the sale of their primary residence, which they felt was not ideal for them as they got older.
Their intention was to downsize in space and value, however, at our suggestion, we also reviewed an option of upsizing the value they reinvested in their home, at two price points higher, than the current value of their home. The first being $50,000 more expensive and the second being $250,000 more expensive. We wanted to show them the potential Age Pension benefits they could get, along with enjoying a more expensive home and the lifestyle benefits that come from that.
Outcome
Christine and Michael’s reason for seeking financial advice around their primary residence was not to improve their financial position, as the sale of the Barwon Heads property would be sufficient to fund their lifestyle.
As this was a lifestyle decision, we first projected the financial implications of the couple selling their primary residence and purchasing a new one for $800,000, which would be effectively ‘upsizing’ by $50,000 in value and the result is that they would have additional assets not assessed by Centrelink.
Based on this higher price point, we estimated that the couple would then be eligible for $8,200 per annum from the Age Pension.
This scenario saw a slightly lower outcome by age 90 with $807,768 in financial assets and $1,964,166 in total assets, which is largely due to the selling and purchase costs of the decision.
Expanding on this plan and giving the couple greater confidence and more variety in options, we projected the couple’s financial situation over the next 13 years if they were to purchase a property worth $1,000,000 and sell their current residence.
This again resulted in the couple having less assets assessed by Centrelink, with the outcome being $670,143 in financial assets at aged 90, and $2,111,694 in total assets, and an estimated $16,500 p.a in Age Pension entitlements.
We projected this outcome so the pair could be confident in purchasing a property that provided more than a monetary benefit, but an ideal space for their personal needs in retirement and this was our recommended option for them.
Alternatively, we assessed the option of selling their current primary residence and buying a $600,000 home, which is what they were already intending to do, irrespective of our advice regarding Barwon Heads and this would leave them with $944,488 in financial assets and $1,815,735 in total assets but would mean they are ineligible for Centrelink benefits.
We overlaid each of these property choices with advice on the Downsizer Contribution to Super, and we projected that the below contributions would help ensure they have a comfortable income stream well into the remainder of their retirement.
Advising on further investment strategies, we recommended that any funds left above $5,000 in the bank be invested personally by utilising our Managed Discretionary Account for super and investments.
The sale of the Barwon Heads property would also allow them to update their 2002 sedan, and after the tax of the property was paid, they would then be able to apply for Centrelink benefits with our assistance.
Produced with our client’s permission
