professional wealth management advisers

Wednesday, March 28, 2012

Wisdom in hindsight: a Case Study on ‘hypoH’

How often have you said – or have you heard your senior friends say – ‘if only I had….’? In this post we are going to look at some of the decision points as we journey through life, but looking back from a time when retirement is being contemplated to consider how things may have turned out differently if more informed decisions been taken at some of those occasions.

Let’s contemplate hypothetical Harry: this imminent retiree has arrived to a time when a decision needs to be made about retirement – looking at the asset position, he finds that as a 65 year-old, his superannuation account is sadly shy of what is desirable for a comfortable retirement. The fund has less than $200,000 invested – and because of investment decisions based on his age, the asset allocation in the fund is for a defensive outcome. Harry also has a home, still subject to a mortgage at about 65% of its current market value. He is married (for a second time) and has a teenage child still in the family home.

We won’t detail all of the financial position for ‘hypoH’ but suffice it to say that there are some decisions he has reflected on that he feels he could have had a better end-position had he taken appropriate advice.

‘hypoH’ has been employed in well-paid positions for the past thirty years. He has had reasonable cash flow over the past ten years in spite of having settled a marital breakdown situation some fifteen years ago. Unfortunately, much of what should have been ‘surplus’ cash flow has been expended on lifestyle items including new cars, overseas holidays and expensive interior furnishings for the home; and so only a limited amount has been deployed to reduce the mortgage debt.

What could hypoH have done differently over the most recent few years? Since age 55, our subject could have been accessing his superannuation account in a way that would actually help him to grow the amount accumulating – yes, he could have been eating some of the cake and still have more left! Since he turned age 60, this strategy could have been even more effective. [From age 55, the withdrawals would have been subject to some taxing considerations; from age 60, no tax would have applied.]

Since 1 July 2007 hypoH could also have been making higher levels of contribution to bolster the accumulating funds: with separate caps on Concessional and Non-concessional contributions, the spent ‘surpluses’ could have put the family I a stronger position to cope with the imminent retirement.

Fortunately for hypoH his health has stood by him well over the past several years, but his failure to insure himself (and his family) has meant that they have lived those years with a higher level of risk – and anxiety – than was necessary. In the absence of a considered Estate Plan the family has not considered their need for life insurance products and hence hypoH is entering retirement phase with only a limited (and diminishing) amount of insurance protection that has been provided by his employer-sponsored superannuation scheme. Even with this, his Income Protection and his TPD covers have now reduced to Nil. His wife and young family are in financial danger if he meets an untimely demise any time soon. [And with a ‘former family’ in the background, the lack of Estate Planning may mean that there is an even greater risk for them should there be any challenge by the former family to participate in the distribution of the Estate.]

When hypoH was between 35 and 45 years of age, he might have been wise to heed the recommendation of that insurance adviser that called on him so many times and taken some properly structured insurance – and taken ‘level premium’ insurance so that it remained very affordable towards the latter years.

Whilst hypoH may have had to settle out some of the accumulate wealth on the breakdown of his first marriage, having established a habit of regular saving would have stood him in good stead – and made him aware of the benefits of ‘dollar cost averaging’ to establish a fund for the education of his second family.

All of these strategies were available to hypoH over the course of his financial journey: hypoH won’t get another go at getting his affairs in order (unless of course he wins Lotto, benefits from a significant inheritance or in some other way receives an unexpected significant capital windfall). Our readers however, can take advantage of the lessons learned through hypoH’s experiences – but the time to act is NOW!

To ensure you don’t arrive at this position, call Continuum Financial Planners on 07 3421 3456 to arrange a meeting with one of our experienced advisers; or if wanting to contact out of office hours, use our online facility to Contact Us – the first three enquirers to respond will be given a free, no obligation consultation.

Disclaimer: The information contained in this article is general in nature and does not take into account personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and   read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product. 


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