The client:

Dave from Capalaba, age 60, approached Raeburn Advisors to help manage his investments. Dave owns his own home and $1.1M in cash as a result of selling an investment property. He had $437K sitting in his super fund. Dave wanted to live a retirement of his choosing, but found that the cash he had available to him wasn’t working for him.

Dave understood the value of having a reliable asset pool to secure his retirement – as mentioned he’d recently sold an investment property, partly to access the capital and partly because he didn’t want the hassle of managing an investment at his age. He also had some experience with buying and managing shares as part of his investment portfolio, but found it was too time-consuming and that he wanted to spend his retirement doing what he loved, not what he “had to do” to keep his cash flow going. In both cases, he also felt like he wasn’t ever getting the most value out of his investments and wanted to see what a professional could bring to the table.

The strategy:

1. We made a personal non concessional contribution of $100K in one financial year (which was the maximum for that year) then we utilised the bring forward rule and made another $330,000 into his superannuation account. The client had sold down the property in the previous year and tax was already paid so we were unable to reduce tax for the previous year via personal deductible contributions.

2. We then converted his super into a pension income stream which saved him tax on the earnings within the super fund and also created a tax-free income stream of approximately $18,000 for this year. Thanks to COVID restrictions this was further reduced with a minimum 2% income withdrawal mandate. The benefit of drawing the lower amount out is to ensure that he is able to preserve as much in super as possible.

3. We then also invested $300,000 into a tax effective income portfolio which has mostly Australian equities with fully franked taxation credits, so the income will be tax efficient. We will draw approximately $20,000/year for the client from this portfolio.

4. We decided to leave $130,000 in cash for Dave to subsidise his ongoing lifestyle costs (approx.. $50,000 per year) and reduce his exposure to volatility. We will slowly over the coming years transition his assets to superannuation use tax effective strategies.

The outcome:

Dave was very receptive to our advice and together we’ve helped structure his investments so that he has balanced portfolio full of conservative asset allocations. In addition, most of the Australian equities within his overall portfolio are held in his own name, allowing him to obtain the franking credits and have lowered capital gains liabilities. The end result is a stable, secure platform that reduces Dave’s costs, makes better use of his assets, and provides him with the returns to sustain his desired lifestyle.

Dave now has the financial peace of mind and financial structures in place to enjoy his ideal retirement, and focuses on fishing in North Queensland, drawing a passive income of $50,000 per annum while Raeburn manages his investment affairs.

Note: Client names have been changed for confidentiality reasons but case study is otherwise accurate and true.