No more hassles, thank you – we are retired
When you have worked hard throughout the working phase of your life, retirement is the time to enjoy the wealth you have created. There are so many things that you want to do – travel the world, get that golf handicap down, spend more time with the grandchildren and buy the lifestyle property that you have wanted for some time. But are you still worried about how to manage your retirement funds and how long you can live the lifestyle that you want to live? This was Jim (64) and Mary’s (63) situation.
About Jim and Mary
Jim and Mary were on the cusp of retirement. Jim had a successful career as a senior manager with a large company, while Mary had raised four children who had now moved on to building their own successful careers and families. Jim and Mary were excited about the prospect of retirement and leading an active life.
Jim loved his golf and Mary loved travelling. They both adored their grandchildren and wanted to buy a holiday house down near the sea. This had been a long-held dream and they finally had the time to make it happen. It would be a place for them to enjoy their retirement (close to the golf course) and one where the grandchildren could visit and enjoy a seaside holiday.
Unable to Relax
But there were a number of issues still worrying Jim and Mary and they couldn’t relax… just yet. Jim’s superannuation funds were held within his employer’s Defined Benefit Fund and he needed to decide what to do about these funds. He had two choices – take a pension from the Defined Benefit Fund or rollover his funds to a personal Account Based Pension. Which was the better option? And that holiday house – could they really afford it or would it jeopardise other aspirations they had for their retirement? How much could they afford to pay themselves from their pension fund and how long would the funds last?{/slide}
Strategic Wealth’s Advice
Jim and Mary engaged our team to develop a comprehensive retirement plan that would provide them with the answers to these important questions, and a solution to their desire for a hassle-free retirement. We first turned our attention to the issue of the Defined Benefit Superannuation Fund. We analysed Jim’s various options and developed a financial model that showed the couple the comparative projections of the income that could be generated from each option. We also analysed the other qualitative aspects, including how much residual funds may be available to their estate should they die at specified periods over the next 30 years.
Jim and Mary chose to roll over their funds into a personal Account Based Pension fund and take control of this valuable asset. This option ensured that they would have greater access to their funds, and that their estate would be likely to receive a higher-level of residual funds. Taking control of their superannuation was important to them and now they needed to address the issue of asset allocation and investment strategy.
Understanding the Key Issues
We helped Jim and Mary understand the key issues and outlined our investment philosophy. We explained that retirees usually do not have a second chance to rebuild wealth so it was important to adopt an investment strategy that preserved their buying power and managed the potential risks. We agreed to design a highly diversified portfolio based on the cost effective manager-of-manager approach, which fitted well with their preferred minimum hassles attitude.
We also developed a comprehensive financial model of their situation that provided Jim and Mary with a good understanding of how much they could afford to pay themselves and how long the funds would last. We included all lifestyle activities, including the desired seaside property. We also conducted a sensitivity analysis to show how the changes to the market returns impacted on their funding plans. And, happily, we showed that they could afford to buy the seaside property using their cash funds that had been set aside for the purchase, topping it up from the sale of Jim’s Executive Share holdings. In addition, we developed a plan to reduce the tax payable on the sale of the Executive shares by making contributions to superannuation. Understandably, Jim was ecstatic. Finally, we made sure that Jim and Mary’s estate plan delivered on their objectives to distribute the residual funds equally to their four children. Enduring Powers of Attorney were put in place to ensure that Jim or Mary could continue to manage the finances in the event that the other party became incapable of doing so.
Getting Value
At Strategic Wealth, we know that value has a different meaning for different clients. For some, value can be best described as solid financial gains over what they were currently doing. For others, it is more about peace of mind and the comfort of knowing that they have a professional team helping them make the right decisions in the beginning and each time the rules change. Jim and Mary were in the latter category. Hassle free retirement is what they wanted… and that’s exactly what they are now enjoying.
