45 – 55 Year Old

A very busy time of life and the thought of retirement are now starting to be more frequent as “time has flown”. You are trying to maintain your career, the kids are growing up which the bills don’t stop and have a bit of fun as well. You are on top of the mortgage and are thinking what do I do know?

This stage of life is akin to the third round of a golf tournament you need to get into a position to try and win the tournament, it’s getting serious. Your decisions at this stage will seriously impact upon whether you are going to get where you need to be.

Golden Rule – Protect What You Have got

Main asset at this stage of life is your ability to go out and earn an income for the next 10-20 years.

An “average” individual age 45 years earning $80,000 p.a. will earn more than $2,171,630 before retirement, assuming 3% inflation. To protect this amount it will cost them as little as $100 per month, which would be tax deductible.

We need to implement strategies to ensure that you and your family are protected should you not be able to work as a result of sickness, injury or death. Such strategies are designed to provide certainty in such circumstances but we can package them up in cost effective matter to ensure that your cash flow is not effected, such as using your superannuation fund to hold insurance where possible.

ASB statistics show that the current annual death rate of parents with dependant children is around 4,400.

Real Life Case Study

A father of 3 children died due to a previously undetected medical defect. He had adequate money for us to be able put in the right tax structure to ensure we could pay the family a tax free income from the proceeds. By getting the structure right we were also able to access to government benefits including regular pension payments that would not have been available otherwise.
A father of 2 suffered a massive heart attack which resulted in medical complications and was unable to continue working indefinitely. The day it happened we received a phone call from his wife worried about how she was going to afford the mortgage repayment, children’s school fees and general cost of living. As we had implemented appropriate plan covering such a scenario we informed her that regardless of the outcome financially the family would be secure and they only need to focus on the medical needs of her husband.

Getting Exposure to Investments

To be financially secure you need two objectives to be satisfied;

You need to own your house
You need a passive income stream form your investments.

You have spent 10-20 years addressing one side of this equation and are now in a pretty good position with no or a manageable mortgage.

Where are you in regards to the other component? Where is your retirement income coming from?

Furthermore, your biggest expense is tax! The Australian tax system actually encourages investment by providing tax breaks.

If you have equity in your home and at least another 10 years of work than this is the perfect platform to start an investment strategy from. We have a number of strategies aimed at investing alongside contributing to superannuation (or even paying super for you).

What if you don’t have enough equity in your home or it is tied up in the business? There has been substantial development of the opportunities available in this space other the last few years. As a general rule as long as you have some savings capacity we can look at a range of strategies that will get the most out of what you are trying to do.

Real Life Case Study

1.In June we put clients into a structured product that could go for a period of 5 years. The product was capital protected so you only need to fund the interest and there was no recourse if the investment was under water. The interest rate was 9% and there is a 4.5% income paid to the investor at the end of the year. For a person on 30% tax rate the cost to gain exposure to $100,000 would be $3,150 per annum. In 4 years if the market is back up to where it was 2 years ago we could be walking away with capital gain of about $65,000.
2.Given the share market volatility over the last couple of years, opportunities have never been so prevalent. We can invest in a portfolio of shares and the income stream from this portfolio will be greater than the after tax cost of the interest.....this means it costs you nothing to hold. This is a once in generational opportunity don’t miss out.

Superannuation – The Hidden Gem

Superannuation not only provides you with tax effectiveness solutions but the perfect platform to undertake a long term investment strategy.

If you have a current super balance of $200,000 and your superannuation contributions are $6,500 per annum (based on SG of 9%), with income indexed at 3.1% per annum your retirement nest egg would be as follows;

Annual Return	10 Years	20 years
7%	$502,237	$1,135,629
9%	$594,799	$1,527,750
11%	$703,270	$2,180,603

The difference between the difference rates of return is quite large over long periods of time. By minimising fees and accessing appropriate strategies we can ensure that we are getting the most out of your retirement nest egg.

We could also use superannuation fund s to pay for insurance premiums to make sure the family is protected. I am always frustrated when people say I want insurance and it makes sense but I don’t have any insurance due to the cost. We can utilise superannuation to assist in meeting these costs, at the end of day if you need it and don’t have you are stuffed.

Self Managed Superannuation – The Rolls Royce

Undoubtedly, the best vehicle for superannuation to be held and once a family has about $150,000 in aggregate monies it becomes cost effective. We can utilise strategies inside these funds that are not possible in a retail or industry fund environment.

Some of the reasons why we utilise Self managed Superannuation is as follows;

Be able to control and be actively involved in the investment decisions in relation to your superannuation fund,
Have the option of investing in particular types of assets not commonly available through other types of superannuation structures such as warrants and direct property. We can also use gearing (or borrowed money) to purchase these assets which will magnify returns over the long term.
Have flexibility in structuring of the payment of superannuation benefits to others in the event of death,
Be able to transfer existing investments that you hold into the superannuation environment,
Accumulate savings for your retirement in a tax effective manner,
Achieve cost savings in the ongoing management and administration of your superannuation savings,

Tax Minimisation

What do you think is your largest household expense?

Now, look at your group certificate from last year and see how much tax you paid?

We need to incorporate a strategy to ensure we are only paying the required amount of tax. Interestingly, the tax system encourages individuals to do all the things we have discussed previously so if done properly we can attain a tax break and reduce that scary number.

Helping the Kids

I feel obliged or indeed want to help the kids get started. How can I help them but still do what I need to do?

This has become a major demographic shift over the last decade with kids staying at home longer, the cost of which I don’t need to tell you. This effectively means that retirement planning is again getting delayed, how can we combat this?