Prior to John turning 60, tax was applicable on the income from the annuity and the draw-down from the account-based pension, but it did contain a 75 per cent tax-free component, plus a 15 per cent tax offset.
But since turning 60 last July, any income coming out of the pension is now tax-free.
In addition, John is eligible for a dependant spouse rebate of around $2150 on Janice’s income.
MEETING NEEDS
With the retirement strategy now implemented, Sadri says John and Janice can enjoy a worry-free lifestyle knowing that their hard-earned nest egg is sufficiently incubated from future sharemarket shocks.
‘If the market does go down in the second or future years, the protected value is locked in’
As well as offering a predictable income stream to meet lifestyle expenses, his retirement strategy for John and Janice also offers the potential for an additional guaranteed 5 per cent annual return. While this is predicated on the S&P/ASX 200 rising in value by 5 per cent, there are few exceptions when the sharemarket has failed to deliver this modest annual return.
By doing this, Sadri met the specific objective of potentially sound capital growth for that portion of John’s investments.
So in addition to full exposure to the sharemarket, and a guarantee term of 10 years, they also received a unique “protected growth guarantee”.
Over the next three and five years respectively, Janice and John will both be eligible for the age pension which, Sadri says, will further reduce the risk of them outliving their capital.
As a retiree, John says he’s chuffed with the sense of financial security he and Janice now have, plus the embedded flexibility within the overall plan to respond to lifestyle changes. He says the plan design accurately meets his need for both capital growth and protection.
John admits that the guarantees underpinning the bulk of their investments make him more confident about his capital lasting longer. And their financial plan has gone a long way to allaying those niggling fears about income streams.
“While I quickly established a rapport with Gus, it was equally important that Janice did too,” says John.“If I hadn’t been able to walk out of Gus’s office understanding all of his recommendations, I would never have walked back in.”
THE PLANNER
GUS SADRI
Financial adviser Wealthwise Pty Ltd
An authorised representative of Financial Wisdom, Sadri’s qualifications include a Master’s Degree in Economics and a Diploma of Financial Planning. After working in banking in the Middle East, Sadri spent a long stint at Godfrey Pembroke as a para-planner, before becoming a financial adviser in 2002. Winner of the Financial Wisdom Top Adviser WA award in June 2004, Sadri is the recipient of the Value of Advice Award 2010.
Advice Structure
Wealthwise transitioned to a fee-for-service model five years ago. It operates a three-tier fee system in-line with the volume and complexity of advice provided. As the firm is still transitioning from older legacy products, any remaining trails are refunded back to clients, together with any GST incurred. While clients can choose a fee-for-service or trailing commission model, almost without exception the former option is preferred.
History
When Sadri inherited him as a client following a company buy-out, John Leeds’ only investments were a small super fund and a couple of legacy Colonial products he’d held since the mid 1990s. It was a gearing plan proposed by Sadri to position John and wife Janice for future growth – once the family home was finally paid off in 2003 – that accelerated their opportunity to start adding value through advice. With the gearing strategy severely compromised by the GFC, growing concerns over John’s pending retirement spurred their interest in seeking more comprehensive financial advice in 2008.
Strategy
Now debt-free, John and Janice had sufficient income to accelerate a wealth accumulation strategy; but their risk profile following the GFC meant that capital preservation was going to be equally, if not more important than future capital growth. As well as wanting guidance on gearing into direct shares and salary sacrificing, they also needed advice about what to do with a defined benefit employer fund lump sum that John’s would receive on retirement. Having turned 60 this year, John wanted to ensure they had guaranteed funds to live on, plus some potential exposure to long-term capital growth.
Financial situation
At inception Now
Fee for advice $550 $1,925
Net debt gearing $125,000 $125,000
Family home $350,000 $650,000
Super: Janice $5,000 $12,000
Super: John $450,000 $ (as below)
Insurance cover $300,000 (via employer super) Nil (now retired)
Account-based Pension Nil $138,00
CommInsure Guaranteed Index Track Annuity Nil $250,000
AXA North Guarantee Nil $320,000
Net asset position $680,000 $1,245,000
*Client also has BP shares worth more than $50,00 (acquired under employee share plan)
