Small Business Owner Retirement with $90K Tax Savings
Background: Meet Robert and Jennifer
Robert and Jennifer, a couple running a niche creative small business, were referred to us by their accountant to engage a financial advisor for business owners and assist with retirement planning. While their business was currently operating at full capacity, they were looking to gradually reduce their workload and transition into retirement on their own terms.
Due to the unique, hands-on nature of their work, particularly the reliance on Robert’s expertise, they didn’t expect the business to have saleable value. Instead, they wanted to explore other ways to strengthen their financial position for the future.
Key Results at a Glance
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Tax Savings:Re-contribution tax savings for kids – up to $90,542.
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Property:$800,000 property strategy achieved by FY2028 to fund property goals.
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Retire with more assets :$97,500 in additional financial assets at retirement
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Insurance :Reduction in life insurance in line with need
Why Did They Seek Advice?
- Assess the affordability and financial impact of purchasing a coastal property.
- Develop a retirement plan that aligns with their lifestyle and business capacity.
- Review and optimise superannuation to support long-term growth and retirement income.
- Re-evaluate personal insurance coverage to ensure adequate protection without overspending.
- Ensure loan structures and repayments align with their evolving financial goals.
- Build a comprehensive financial plan independent of business sale proceeds.
Strategies Implemented
In our early discussions with Robert and Jennifer, we focused on understanding what retirement meant for them and how their business would factor into that journey. They were clear about wanting a gradual reduction in work, with a flexible plan that could adapt to changing goals.
We explored their ideal retirement timeline, income needs, and how a coastal property purchase might impact their financial future. They also raised concerns about their underperforming superannuation and uncertainty around their insurance needs.
Property Advice:
- Modelled different financial scenarios and determined that they were on track to achieve their goal of purchasing a coastal holiday house by FY2028.
- Discussed their willingness to downsize their family home in Melbourne. While they were open to this, they were initially unsure how much they could afford to spend, given their retirement income needs and coastal property goal.
- Determined that by downsizing, they could afford both a coastal holiday home and a smaller residence in Melbourne, with a combined budget of $800,000 in today’s dollars by 2028.
- Identified that owning two properties would impact their ability to meet long-term retirement income needs. To maintain their lifestyle, they may need to sell one of the properties by FY2046 to fund future expenses.
Superannuation Advice:
- Recommended use of the Downsizer Contribution, contributing $300,000 each to super. $165,530 from home sale proceeds and $134,470 from other sources.
- This strategy would allow them to put more funds into super than regular rules would permit, providing a tax-effective environment with lower tax rates.
- Advised further super re-contribution strategy to potentially save up to $90,542 in tax for their non-tax dependents.
- Encouraged maximising concessional contributions while still working, saving up to 19% in tax compared to receiving these funds as salary.
- As they begin scaling back from work, proposed $1,000 annual non-concessional contributions to qualify for the $500 government co-contribution each year.
Investment Advice:
- Recommended investing surplus company cash above the $100,000 buffer into a diversified managed investment portfolio.
- Advised annually investing surplus funds while the business remains profitable to enhance long-term asset growth.
- Identified an estimated benefit of $97,500 in additional financial assets at retirement from investing excess cash rather than holding it.
- Proposed withdrawing income from the company after retirement to take advantage of lower tax rates.
- Reviewed their commercial property, which was held in a family trust, had existing debt, and was currently untenanted. As it was already listed for sale, we recommended withdrawing the remaining balance after the sale and transferring it to their personal accounts.
- We also advised closing the family trust to simplify their financial and reduce unnecessary complexities, which the accountant agreed was sensible.
Insurance advice:
- Reviewed existing cover and advised retaining current policies due to favourable underwriting with no exclusions or loadings.
- To enhance their financial protection against insurable events, we adjusted Jennifer’s life cover down by approximately $1.2M to match her trauma cover of $187,611 and reduced Robert’s life cover by approximately $1.1M, setting the total at $655,000.
- These changes preserved meaningful cover while significantly improving their cash flow for retirement.
Centrelink & Seniors Entitlements:
- Given the clients’ age, we advised Robert and Jennifer to apply for the senior’s card, enabling them to access a range of valuable benefits and concessions tailored to seniors.
- Recommended applying for the Commonwealth Seniors Health Card upon retirement to reduce medical expenses.
- Considered the impact of owning a holiday home on Age Pension eligibility and recommended applying once eligible, allowing them to take advantage of available government support and entitlements at the appropriate time.
- The careful consideration of their age, lifestyle choices, and eligibility for various entitlements forms an integral part of our comprehensive financial planning strategy, aimed at providing them with peace of mind and financial freedom in their golden years.
Outcome and Benefits
- Achieve their goal of purchasing both a coastal holiday property and a downsized Melbourne home by FY2028, with a clear understanding of future affordability.
- Developed a staged retirement strategy, helping them understand how long they need to work and what scaling back might look like, aligned with their personal and financial goals.
- Downsizer and re-contribution strategies are projected to save up to $90,542 in taxes for their non-tax dependents and maximise the tax-free portion of their super.
- Investment of surplus company funds is expected to result in an additional $97,500 by retirement, compared to retaining the funds in cash.
- Insurance restructuring preserved essential cover with no exclusions or loadings, while reducing unnecessary premiums to free up cash flow for other goals.
- Advised timely applications for Seniors Card, Commonwealth Seniors Health Card, and Age Pension when eligible, balancing asset strategy with future government support.
Key Takeaway
Robert and Jennifer’s journey highlights how tailored financial advice can help business owners navigate the complexities of retirement planning, especially when there’s no business to sell and a desire for flexibility in the years ahead. Through detailed modelling and a personalised strategy, we helped them confidently plan a staged transition to retirement, secure their property goals, and restructure their finances to be more tax-efficient and sustainable.
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Important Note
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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