Retirees | Abound Financial & Lifestyle Planning
Retirees
Stan and Alice Blythe have been retired for a couple of years and live off their investment income. They enjoy travelling and go on a number of trips each year. They have various hobbies and are active in the local community. Stan has a health issue and they spend a portion of their income on medicine.
They would like to ensure that they are doing the right things with their investments and don’t want to feel like they’re missing out on any potential benefits or strategies that could improve their financial position.
Stan and Alice discussed their situation and lifestyle goals with their financial planner and provided their financial details as part of the financial planning process.
Current Income and Expenditure| Allocated Pension Income | $35,000 pa |
| Allocated Pension Income | $25,000 pa |
| Living Expenditure | $60,000 pa |
Current Lifestyle Assets
| Principal Residence | $500,000 |
| Home Contents | $8,000 |
| Motor Vehicles | $15,000 |
Current Investment Assets
| Bank Account | $15,000 |
| Miscellaneous Shares | $28,000 |
| Stan’s Allocated Pension | $460,000 |
| Alice’s Allocated Pension | $410,000 |
After a thorough analysis of their finances the advice provided the Blythes includes the following:
Investments
As the Blythes rely on their investments for their livelihood, they want to make sure that they are making the right decisions in regards to their investments. They wanted to ensure that they do not expose themselves to excessive investment risk. They required a thorough analysis of all of their investments.
The Blythes’ miscellaneous share portfolio is not contributing to their overall strategy significantly and following a review of each share parcel and capital gains tax considerations it was established that the shares could be redeemed and proceeds used to help Stan and Alice achieve their goals.
Stan and Alice’s attitudes to investment risk were assessed and compared to their investment allocation. Changes were made to their allocated pensions with a portion of each pension balance switched to cash. This would be adequate for funding income payments over the next two years.
Retirement Income
Another aspect of Stan and Alice’s situation is ensuring that they will have the income they want for the duration of their retirement. This involves analysing their income needs in the context of their available investment capital and expected future investment returns.
In order to fund a retirement income of $60,000 per annum the Blythes require capital of approximately $1.1m. The Blythes’ current investments total $913,000 which may be adequate to provide an income of $50,000 per annum.
Following a discussion with Stan and Alice they advised that they believe their income needs are greater now than they would be in the latter part of their retirement. Hence they felt comfortable assuming that their income needs would reduce to $45,000 per annum in approximately 10 years from now. Financial modelling indicated that their capital should be able to fund this level of income drawdown.
Social Security
The Blythes’ current level of assets is too high for them to be eligible for the Age Pension. If they were eligible for $1 of Age Pension they would gain eligibility for the Pharmaceutical Benefits Scheme and reduce their personal expenditure on medicine. A number of strategies were considered and recommended as means of reducing Stan and Alice’s assessable assets for Centrelink purposes and thus providing them with eligibility for the Age Pension. Strategies considered include investing in funeral bonds and gifting some of their investments to their children.
An alternative to gaining eligibility for the Age Pension in order to benefit from the Pharmaceutical Benefits Scheme, a suggestion was made to apply for the Commonwealth Seniors Health Card. Based on the Blythes’ current position they should qualify for this benefit.
The Blythes’ total assessable assets for Centrelink purposes are valued at $936,000. In order to gain eligibility for the Age Pension the Blythes need to reduce their assessable assets to below $873,500. While this is possible, it was considered more appropriate to apply for the Commonwealth Seniors Health Card. Apart from satisfying non-financial criteria for eligibility, the Blythes also satisfied the income criteria with their annual adjusted taxable income being below $80,000 per annum.
Estate Planning
Stan and Alice had wills in place through which they plan to distribute their estate to their children and grandchildren. In order to improve the manner in which their estate is handled while ensuring full control and that the complete estate is passed on to their beneficiaries it was recommended that testamentary trusts are included in their wills.
Testamentary trusts can help to distribute your estate to your beneficiaries in a more tax-effective manner and reduce the likelihood of a successful challenge to your will. A testamentary trust may also provide asset protection for beneficiaries of your estate who may face certain legal claims on their assets or are unable to manage their finances.
In order to ensure that Stan and Alice’s allocated pensions are distributed through the testamentary trust appropriate benefit nominations were put in place.
By analysing their financial position and considering their plans for the future we were able to help Stan and Alice improve their current financial position and to feel some certainty around their future lifestyle.