Roger is a geologist who spent most of his career as a consultant both here in Australia and living and working overseas. Like many self-employed professionals, he wasn’t obligated to pay himself super. Now as he approaches his 65th birthday and Margaret, an office manager turns 55, their superannuation balance is modest to say the least.
Roger and Margaret are in the pre-retirement phase of their lives, but happy to continue working for another 10 years. They are high earners and they use their considerable income to enjoy their lives to the full.
They have recently renovated their home and paid for it on their bank overdraft, bought a new car using dealership finance and generally they enjoy spending which is evident by their maxed-out credit cards.
They have two adult children, whom they funded through university and at the time of writing this case study, they had both graduated and were working, but still living at home.
Roger, now an employee rather than self-employed, would like to reduce his work hours but is concerned they won’t be able to meet their financial obligations or have enough to retire on, if he reduces his income.
What we did
When we first met Roger and Margaret, their main concerns were taking control of their debt, building up their super balance and establishing income streams that would fund their retirement when they finally give work away.
There was quite a lot to unpack and our first step was to clarify their assets and liabilities.
On the plus side they had some super, a private residence, rental properties and good incomes which included company shares as part of Roger’s employment package.
As for liabilities, they had significant debt. We helped them to understand the extent of it and the high cost of interest. Roger’s company shares also created an additional tax obligation they hadn’t planned and this meant they had to draw more from their bank overdraft to pay the ATO.
Once we established their financial position, we moved on to matters that could impact their financial security including personal risk and estate planning.
Roger had no personal risk insurance and Margaret had some, but not sufficient to cover their debt if they were no longer able to work or for creating a legacy for their children if they passed away.
Both had been meaning to “do their wills” since their kids were born over twenty years ago.
Armed with facts about their financial affairs and an understanding of their goals, we helped them to make sense of the financial life.
We created clarity that helped them to understand what they had, and what they needed if they wanted to retire and live life their way in 10 years time.
Essentially, their needs included accumulating $600K+ in investable assets, an insurance strategy that would protect them and their family from financial hardship if things were to go pear-shaped, wills and an estate plan.
Like many Australians, Roger and Margaret didn’t realise a will doesn’t cover assets that can include superannuation, shares and property. Nor does a will provide flexibility for trustee decision making and tax efficiencies when managing distribution of assets to beneficiaries (their adult children).
We documented our recommendations and presented them so that Roger and Margaret were clear on our approach and the expected outcomes.
On their agreement, we put the plan into action which involved tackling their debt, implementing appropriate insurance policies for each of them, preparing wills and establishing an estate plan with discretionary trusts, gave consideration to tax efficiencies, and involved their accountant, lawyer and lender to make it all happen.
We also coordinated with a mortgage broker and shared their intention to extinguish all debt by the time they retired. The broker consolidated their loans and refinanced the debt on more favourable terms (including a much lower interest rate).
We reviewed and rolled over their existing retail super fund to a managed super platform. This reduced administration fees and because it was more aligned to their risk profile, the funds were invested with the goal of providing a greater rate of return as required for meeting their retirement goals.
We applied for appropriate levels of insurance which included income protection, life insurance and trauma cover for each of Roger and Margaret.
Then, we organised and attended a meeting with them and an estate planning lawyer. The lawyer attended to their wills and established an estate plan with a testamentary trust. This is important because it provides trustees of the estate flexibility when making decisions for honouring wishes of benefactors and in the best interests of beneficiaries. These decisions often have important asset protection and tax efficiency motives and the legal structure can also protect against unwelcome claims by creditors or disgruntled relatives.
Roger and Margaret now have a clear plan for the future. Apart from helping them to feel well informed about their financial life, they no longer feel financially worried.
Roger has cut back to four days a week, and they are confident they will be able to pay down their debt AND contribute to super too. They also appreciate the considerable superannuation tax saving. For Roger 15% tax inside super is an enormous benefit when compared to his usual 45% + 2% Medicare Levy.
Tax-wise Roger has also been spared some tax on his employee shares.
We worked with his accountant to restructure his employee share scheme so some of the shares could be held by Margaret. This is because her earnings are less than Roger’s. While she stands to pay slightly more tax, their combined tax outcome is more favourable.
Roger and Margaret now have a clear understanding of their financial position and where they want to be in 10 years time.
They also understand their day to day money and follow a simple financial philosophy that’s based on planning their savings first, and spending what’s left.
Perhaps the most welcome news for Roger and Margaret is they know it’s possible to achieve their financial goals without compromising their lifestyle.
What’s more, if they ever hit a bump in the road, their insurances provide an appropriate financial safety net that will allow them to meet their financial obligations and lifestyle needs. Then, in the worst case scenario, their wills and estate plan make clear their wishes for their beneficiaries and the financial legacy they’ve created for them.
For pre-retirees in need of financial advice and planning, please contact Adam Moiler, Moiler Wealth on +61 8 9328 5044 or email firstname.lastname@example.org
Disclaimer: The advice provided here is general in nature only as, in preparing it we did not take account of your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should consider the relevant Product Disclosure Statement before making any decision relating to a financial product
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