Mr & Mrs Brooks

Mr and Mrs Brooks came to see PlanBiz in 2008 when they realised they were 10 years out from retirement. At the time they were interested in how much they could save prior to retirement, but their immediate priority was that they felt they were paying too much tax, so could we do anything to help.

David Kearns met with the Brooks’ to confirm what they had to start with:

• Incomes = $80,000 each, with an ability to save only $10,000 each per annum
• Home loan = $50,000
• Home value = $450,000
• Investment = $100,000
• Combined superannuation = $300,000

At this stage their only solution to their tax issue was to negatively gear into a rental property. They would need to borrow 80% of the purchase price, which would mean a loan of $240,000. At the time they felt they could charge $250 per week in rent, and the interest cost would be $277 per week, with stamp duty, legal fees and real estate agent fees in addition to this.

We felt that in order to reduce their tax liability this strategy option was too high a risk, given that they would have to rely on this one asset improving in value quite significantly if it was to contribute to their retirement savings.

Given the specific time frame for retirement we recommended they do the following:

• Re-draw on their home loan to a maximum of $120,000 over the next 3 years. That is $23,333 each year.
• The loan re-draws are used to help meet their living expenditure while they save more in superannuation.
• Increase their superannuation contributions to $50,000 each per annum.
• The bulk of their superannuation is invested in a capital protected investment.
• Meet prior to each new financial year to review the strategy and modify as needed.

The Brooks’ liked the idea of knowing where they were going, so they took the Road Map to Retirement option and we provided them with future strategy options for the next 10 years.

As a result of implementing the strategy Mr & Mrs Brooks;

• Were able to save significantly more than their planned $10,000 per annum each because of the tax savings they received.
• Reduced their tax from approximately $36,000 combined to $18,000 combined per annum
• They will have a total loan of only $120,000 at retirement, compared with a much larger debt of $290,000 had they purchased the investment property.
• Using conservative projections and expecting that the Brooks’ implement all recommendations over the next 10 years; we estimate that their combined superannuation will be worth over $2 million at retirement.
• With the capital protection in place they are not concerned with the daily fluctuations in the value of their investment.
• Since 2008, we meet each year just prior the commencement of the new financial year with updated recommendations to ensure they remain on their path.
  Our meetings since 2008 have had to deal with issues such as;
• Continuation of the global financial crisis
• Changes to the contribution limits to superannuation imposed by the government
• Changes in their work arrangements
• An increase in their living expenditure since they felt the cost of goods and services rise.
• Assisting children with the purchase of cars and managing university accommodation costs.
• An increase in the number of overseas and local trips they would like to take over the next few years.

At each review, our recommendations have catered for these changes, and although they may impact the final retirement savings value, at least Mr & Mrs Brooks know the impact such changes make and can adjust their retirement plans accordingly.