Case Study: How to leave the workforce and still provide for your family

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We recently provided advice to clients where the husband is in his late 60s and still working, looking to determine when he would be able to retire. His wife is already retired and they have spent a lot of their savings over the years continuing to improve their property while providing assistance wherever they can to their adult daughter and her family.

Along with determining when the husband might be able to retire, our client also wanted to understand some options available that might help improve their financial situation in retirement while potentially continuing to assist their daughter however they could.

On a substantial sized block, one option that they have considered in the past was to add another extension to their property that their daughter and her family could live in. Another was the option of downsizing their property. They were interested in finding out how these decisions might impact their financial position and the husband’s ability to retire.

As a start, we prepared financial modelling that shows their current position if they simply tracked along the path they currently are. This gives us a baseline to understand the impact those financial decisions make on their situation.

Under their current position, our analysis suggested our client might be able to retire by the time he was age 75.5, with the funds they accumulated potentially lasting to age 90.

Our first alternative was to overlay the pieces of advice we believed they should implement regardless of the larger property considerations, such as taking a payment from super to pay out credit card debt, guaranteeing the equivalent of a very good rate of return; recasting their pension each year; contributing the maximum allowable to super; and implementing a strategy to reduce the life insurance on the husband over time to save on the premiums, though keeping the cover in line with their needs. These recommendations helped improve their financial situation, providing them with potentially 10% more in financial assets by retirement.

Next we considered an option of the daughter and her family moving in to a newly built extension of our client’s home. While this solution is not typical, they have a very close family connection, a desire to be closely involved in the upbringing of their grandchildren. We discussed this option at our initial meeting and they discussed it as a family prior to us preparing the plan and were interested to understand how it could work as a potential scenario.

We had previously identified that the client’s saw their home as inheritance for their daughter, along with them believing that it would offer them all a better quality of life. This option would save the need to downsize their home, which was not an option they were enthused by, though wanted to explore.

Considerate of the above, we suggested the option of their daughter selling her property, buying in to 50% of their property and then with the proceeds, the client’s build the extension and put the rest away for their retirement savings. The results indicated that this might help the husband retire by age 72.5, or three years earlier, while benefiting their daughter by giving her exposure to a property they believe is well positioned for future growth, along with them being able to provide her assistance with caring for their grandchildren and in the long term, provide continuity for her family, when the asset is ultimately passed on. In this case, we also recommended our clients seek legal advice if they choose to follow this option, as a breakdown in marriage could lead to a massive disruption for all, which was a major negative of the strategy.

Our last assessed option was a much simpler downsize, selling their property and purchasing something cheaper for retirement. The results in this case were the same, allowing the husband to retire by age 72.5 on the desired level of income they want. This option however, will result in them having to make a significant lifestyle decision that at this stage is difficult for them to seriously consider.

Along with all of the scenarios analysed, we also identified that our client had a superannuation product through a provider that now had a new product on offer that had all of the same features of their existing account however was offered a cheaper price. We recommended this to them as this would help save them almost $700 a year.


"Good fortune needs great planning"

General Disclaimer:

The content of this presentation is intended to be general information only and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters or obtain relevant professional financial advice before making any financial decisions.  Examples are illustrative only. Each person should obtain any relevant professional financial, taxation and social security advice before making any financial decisions.