Having concluded that they no longer wanted the daily pressure of managing their financial affairs, Duncan also recommended that the Olivers outsource the data management to Macquarie Wrap.
“While the Olivers are paying a 0.67 per cent fee for this service, a portion is rebated back as a volume discount,” advises Duncan.
Investments were also moved from a direct portfolio to a more diversified approach using the same asset class investing principles. By employing the same diversification strategy, the Olivers’ eclectic basket of shares was also reviewed and certain stocks that no longer matched their investment profile were sold, with the proceeds going into short-term cash.
INTERNATIONAL EXPOSURE
Given that their age still suited a healthy appetite for risk, Duncan recommended that the Olivers split their portfolio between 40 per cent defensive stocks and 60 per cent growth stocks. Part of the overdue rebalancing, adds Duncan, meant providing much-needed international exposure, which now comprises 12 per cent of the total portfolio.
‘It also means they won’t have to sell any assets to maintain their income’
“By investing around $600 a week at an estimated 7 per cent growth, the Olivers were on target to achieve their financial goals without the additional risk typically associated with a gearing strategy,” Duncan says.“So the degree of risk that the Olivers needed to take was ultimately qualified by the size of their financial gap.”
TRANSITION TO RETIREMENT
As Frank had recently turned 60, Duncan also recommended that he incorporate a transition-to-retirement strategy into the bigger picture.
“With Frank now at transition-to-retirement age, I recommended that he salary-sacrifice a large portion of his pay to super and then draw back from super the required amount to fund their lifestyle. Madge will adopt the same strategy when she too reaches age 60,” says Duncan.
By moving the other assets into Frank’s SMSF – now in pension phase, since he’d turned age 60 – Duncan says it was possible to deliver an even better tax outcome. Consolidated tax savings in the first year were around $18,000 and Duncan expects similar savings in year two.
Even with the turmoil over the past few years, Duncan says the Olivers’ net asset growth is still tracking well against stated goals.
“I expect them to have $99,000 in annual income – predominantly from super – when they plan to retire in June 2012,” says Duncan. “They’re now in a position where they can decide to keep working because they want to, not because they need to.”
Integral to the Olivers’ overall transition-to-retirement strategy are plans to sell the family home, and move into their rental property at Cleveland – following major renovations. Given that they’ll receive small business tax relief on the sale of their business premises, and avoid capital gains tax (CGT) on both the sale of the family home and future renovation work on the Cleveland property, Duncan say this is a highly tax-effective strategy.
EMBEDDED VALUE
As well as valuing his ability to convert “financial speak” into everyday language that a butcher and his wife could understand, the Olivers equally appreciated the time Duncan spent ensuring they fully explored new ideas that were initially foreign to them.
After further scrutiny of their planned lifestyle during retirement, Madge says Duncan showed them how they could live on a significantly smaller amount than originally envisaged.
“We can do what we like once we’re fully retired, but it amazed me that we’re able to live comfortably on a significantly smaller amount during this transition-to-retirement phase,” says Madge.
At the outset, she also admits to not fully understanding the added benefits of a transition- to-retirement strategy – notably its ability to preserve other money from being spent elsewhere.
“I’m now more aware of the need to get as much money into super as we can. Had we not been discouraged by a former adviser way back when, we would have done all this years ago,” says Madge. “John’s fees are always a bit of a shock, but we’re significantly better off financially for having brought more insight and structure to the planning process.”
