What are your thoughts on retirement: are you looking for self-funding retirement?
Self-funding retirement is an admirable goal: and with adequate forward planning and disciplined investing it can be achieved. This will particularly apply if you are young, fit, healthy and aiming to retire before you can legally access1 your superannuation accumulation?
You will no doubt want (or perhaps, need) the security of a steady income stream!
Can you generate a tax-effective income stream that will support the lifestyle you want, at the time you want to enter this phase of your life?
Your primary goal may not be full retirement: the principles discussed below will apply whether it is for early retirement, or to reduce the work commitment whilst continuing to enjoy a satisfying lifestyle.
Retirement by your choice calls for effective investment strategies
Well-designed, effectively implemented, rigorously-tested investment strategies will be required to facilitate self-funding retirement. It will require accumulation of an adequate asset base – and/ or surplus cashflow, whilst you work toward that goal. Your level of financial independence in retirement will be determined by your success in implementing these strategies. Financial calculators abound that will indicate the level of assets required to provide for a given level of income for a nominated period of time: a sound strategy will take into account more that just an asset value however!
Strategy design will depend on the criteria you set, the resources that are available, the certainty of the cashflow to fund your strategy; and the investment risk that you are able to bear.
Self-funding retirement calls for wise investment decisions
The available financial calculators will not ensure that you allow for foreseeable road-bumps along the accumulation pathway. The selection of and allocation to investment products will play an important role in the implementation of the resolved strategy – and give consideration to whether:
- your current assets will hold their value; or will they rise/ fall in any predictable way?
- your current level of cashflow will persist regardless of economic conditions (or any change in your health status)?
- you have made adequate allowance for unforeseeable circumstances?
Retirement Planning and Investment Strategy advice is available
This task is very much a holistic financial planning exercise: it involves financial position analysis; lifestyle and investment funding budgeting; risk management; wealth protection; and estate/ business succession planning.
The experienced financial planners at Continuum Financial Planners Pty Ltd undertake wealth management engagements with a broad spectrum of clients with different goals, different investment risk aversion profiles and different lifestyle funding requirements. A common objective of these clients is to seek the highest level of financial independence possible in their prevailing circumstances. To see if we are able to help you with your wealth management plans, call our office (on 07-34213456), or use our website Contact Us facility to arrange a meeting with our team.
Our approach is – ‘we listen, we understand – and we have solutions‘ (and after implementing your personalised strategy – we care about your outcomes).
EXAMPLE –
Michael is a young entrepreneur, the son of parents who owned and operated their own small business enterprise (which variously involved a manufacturing business, a retail business and a hospitality business) in Coastal Queensland. After 10 years working with his parents, Michael purchased his own business and, using skills he had learned from his parents, operated that business for a further 10 years – during which time he married and together, have started a family.
Not yet 40 years of age, Michael is planning to reduce his workload by his 50th birthday. He recently sold the business and realised a substantial capital gain. Using the proceeds from the capital gain, he embarked on a tertiary degree, preparing himself for the next phase of his work life – a professional career. He is emphatic about self-funding retirement from his early-50s.
Graduating soon after his 40th birthday, Michael utilised the CGT Small Business Rollover provisions and purchased a business in which he had identified some further growth potential, whilst providing him with a substantial income – and called on his exercising his new qualifications, perfectly blended with his prior business experience.
Recognising the value of financial planning advice, Michael approached us with his goals fairly clearly identified:
- Secure a lifestyle income stream;
- Provide for the education of his children;
- Provide for desired capital acquisitions/ lifestyle expenditures (cars, caravans and holidays);
- Provide financial security for the family in spite of unforeseen circumstances; and
- Accumulate wealth to fund retirement from age 55, after pre-retirement reduction in workload to 65% of current effort.
Because his plan required access to an income stream prior to his achieving a superannuation condition of release, the wealth accumulation strategy involved savings under both inside superannuation and external to it. The funds accumulating outside super also need to cater for the children’s education and acquisition of the lifestyle ‘assets’.
Michael’s investment risk aversion profile indicated that he was prepared to – and in this case, needed to – gear some of the portfolio.
Our solution to Michael’s needs has been to recommend –
- A superannuation savings program that is tax effective and ‘out of reach’ pending the crucial ‘condition of release’ being attained;
- A self-managed superannuation fund – SMSF (in which he ultimately acquires an investment property with approved borrowing from a financial institution);
- A savings plan designed to provide funds for the children’s education, facilitating payments as required to meet school fee and uniform costs;
- A geared savings plan to provide pre-retirement income;
- Income Protection Insurance to fund any short-term interruption to income generation by Michael;
- An estate plan providing clear understanding for Michael and his wife, that funds would be available for him to provide for them in his death as he would like them to continue during his life;
- Life (Term) Insurance to fund capital from which income streams will generate to fund the ongoing living costs for survivors (both on Michael and his wife). This cover is also used to balance some Estate distribution inequities that may arise;
- TPD and Trauma Insurance to fund immediate costs; and fund the difference between the current cashflow requirements and what benefits will be received from the Income Protection Insurance.
- Ongoing service from our firm to review the progress of the strategy with a view to being able to fine-tune any elements that become unbalanced as Michael progresses towards attainment of his goals.
1 At time of re-posting, the earliest age-based condition of release of superannuation benefits is 55.
[Originally posted in February 2010, this article has been redrafted and re-posted in October 2014; and updated in April 2016.]
