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Investing for the Future

The Client …

Ben and Bertha were both 53 and had just sold their business for approximately $600,000.  Over the years they had accumulated just $23,000 in superannuation, but had managed to acquire a rental property now worth about $310,000.  Their residence and cars were owned freehold.  After the years of work on the business, they were both looking forward to an easier lifestyle.

The Problem …

Ben and Bertha found themselves with a substantial amount of money to look after, some basic ideas of what they wanted to achieve and a bewildering array of options and possibilities, not to mention how income taxes might affect their plans.

How to ensure adequate money was always available for living costs now and provide a suitable retirement income protected from inflation was the immediate problem.

Ben and Bertha were not sophisticated investors. A program of education so they could understand investment risk and its benefits was therefore essential. They also recognised they had neither the expertise nor the inclination to actively manage the investments on a day-to-day basis.

The Process …

Through a carefully designed program of discovery we understood that, now being totally debt free, Ben and Bertha needed an after tax income of at least $40,000 a year.  They thought they would need that level of income (in today’s dollars) right through their retirement years.

In order for their income to keep pace with inflation, we demonstrated to them that the capital would also need to grow.  They agreed that the only way they could achieve this was to take a sensible level of investment risk.  Their other needs were to;

  • Have access to some of their capital at all times
  • Ensure the necessary flexibility in their investment portfolio to meet any unforeseen income needs or respond to changes in the investment environment.

The Solution …

It was decided to first clear Ben and Bertha’s small remaining debts ($12,000) and keep another $30,000 in an interest bearing account at call meeting the needs for instant liquidity.

To help minimise income tax, Bertha invested $65,000 in a monthly income fund and $100,000 in a managed share fund aiming for capital growth and tax effective income via imputation credits.

The balance of around $400,000 was invested in superannuation. It was possible to minimise the investment risk by building a diversified portfolio of cash, fixed interest, property and& share investments. Risk was reduced further by having more than one investment manager looking after the money. We also took advantage of the favourable tax treatment available for capital invested in super and the income streams they can provide.

The Outcome …

Ben and Bertha can relax knowing they have provided for their income needs, are paying as little tax as possible, have access to virtually all their capital if needed and will achieve steady growth on their investment, all within a framework of sensible and balanced investment.

Half yearly reviews will keep things on track for them into what is now a very secure future.

This is a real case history where names have been changed for privacy reasons