Real client story. Names and some details have been changed to protect our clients’ privacy. Figures were estimates at the time of advice and outcomes are not guaranteed. Every situation is different.
Jamie, 57, and Marion, 56, had both taken voluntary redundancies after many years in corporate roles. They had already sold their home, about half an hour from the city centre, and were renovating an inner-city investment property to sell at a profit. After that, the plan was a permanent move to the coast. It was an exciting picture. In our first meeting, though, they told us they felt underprepared for the decisions in front of them, and they were worried their money might not last the distance.
Where they stood
Their finances had a lot of moving parts. There were two redundancy payments and several retail super funds from past employers, plus the cash from selling their home. They planned to live in the investment property while the renovation was finished, then sell it and buy on the coast. They wanted an income that would pay for an overseas holiday every year, and they wanted their adult children to inherit whatever was left in a sensible way.
What we found
Their biggest fear was a specific one. What if the renovated property sold for less than they needed to buy on the coast? Most of their wealth was either sitting in super or earmarked for the renovation, and there was no plan for bridging a gap.
We modelled a range of scenarios, including whether a self-managed super fund would serve them better than staying with retail or industry funds. After working through the numbers together, Jamie and Marion decided an SMSF was the right fit.
What we did
We started with their personal cash, matching it to their short, medium and long-term goals. Part of it paid off the mortgage on the investment property, and part was held in reserve for the renovation. The surplus went into their SMSF as non-concessional contributions. Given their age and the fact that they had retired, they had met a condition of release under the rules at the time, so this money could be withdrawn later without tax if the property sale fell short. The preservation age is now 60 for everyone, so the same approach would play out differently today.
Because their beneficiaries were all adult children, we also recommended a withdrawal and recontribution strategy, converting taxable super into tax-free component. That reduced the tax their children could pay on any super they inherit. In the short term it also allowed more non-concessional contributions into the SMSF, which improved their access to capital for the coastal purchase if they needed it.
With those pieces in place, we worked out the annual income they wanted and started pensions from their SMSF to pay it. We also worked alongside an estate planning specialist to put their wider estate plan in order.
The result
The renovation was completed using the personal funds set aside for it. As it turned out, the sale did not fully cover the coastal move. Because the planning had been done in advance, they were able to draw extra money from their SMSF without paying tax, and the move went ahead.
The pensions from their SMSF now provide the cash flow they need, including those overseas holidays. They have travelled through Europe and are now planning a trip to South America. We continue to review their position regularly and look after their investment portfolio, including strategies to help manage the impact of big market swings, and we keep their estate plan current with their specialist.
What we took from it
Jamie and Marion came to us worried that an early retirement might not last. What made the difference was preparing for the outcome they feared most before it happened. When the property sale came up short, it became an inconvenience rather than a crisis. Good planning rarely shows itself on the days everything goes to plan. It shows on the day something doesn’t.
If any part of this story sounds familiar, book a free 15-minute chat and we can talk it through. You can also read more client stories.
General advice only. This story describes advice given to particular clients at a particular time. It does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and read our Financial Services Guide before acting.
Wealth Effect Group (CAR 424768) and Andre Dirckze (AR 395157) are Authorised Representatives of Boston Reed Pty Ltd, ABN 89 091 004 885, AFSL 225738.