(Case Study) How John and Mary secured their retirement income with an uplift of $400k?

As retirement looms closer every day, you may be sitting there feeling like you’re on the hamster wheel. Maybe feeling a little out of control, a little confused by the mixed messages.

You may be feeling like a deer in the headlights, wondering how retirement crept up so fast. Now you’re sitting there after years of accumulating super and perhaps other assets such as investment properties, wondering whether in fact you have enough.

Thinking…

I don’t want to run out of money in my retirement years

You’re in two minds, can we retire comfortably if we give up work or wondering how much longer you need to work to be comfortable financially in retirement.

It’s a double edged sword…

Work longer to accumulate more money, but it eats into your active years of retirement. Taking away the time to enjoy retirement while you’re fit and able.

Give up work earlier and risk running out of money and living in poverty at some stage in retirement.

Both scenarios are not ideal…

On the one hand you risk missing out on experiences and memories if you leave it too late. On the other hand you need enough to live comfortably in retirement. The last thing you want is to be forced back into the workforce part way through retirement.

You’re at the crossroads…

Wondering where you’re heading financially. Trying to figure out whether you’ll have enough money to see you through retirement without the risk of running out of money.

It’s a complex equation with many inputs and outputs to consider.

That’s exactly how John and Mary were feeling when they came to us…

John and Mary’s retirement challenges

John and Mary were in their early 60’s and witnessed many friends around them retire before them. They’d had enough of the hustle and bustle of the 9-5 routine and wanted a more relaxed lifestyle.

But at the same time they had elderly parents they were taking care off, which presented some challenges. A major challenge for the sandwich generation.

However, the main driver for John and Mary was watching close friends suffer illnesses or sadly pass away without the ability to really experience retirement.

Since Covid-19 hit the country in 2020, many have reconsidered their retirement and lifestyle options. It was a wakeup call for many. That in fact we don’t know how long we’ll have our health for.

Prompting the motivation to seek early retirement and enjoy life while they had their health.

This was John and Mary, but what was frustrating them, is they didn’t know if they had enough to consider retirement at this stage. They had accumulated a reasonable amount of assets but could not make sense of whether this would get them through retirement.

They also did not want to retire and realise part-way through retirement they did not have enough to enjoy life either.

They wanted time freedom to:

• Choose how long they wanted to work for
• Travel the world on a whim
• Focus on their passions and hobbies
• Spend time with their family and friends

But they had no clarity or confidence that they would have enough money to support their lifestyle for the rest of their life.

They were scared of making a mistake and miscalculating their retirement numbers. After all, everyone’s biggest fear is running out of money in their retirement years. It’s a scary proposition to sit there watching your assets go down in your retirement years afraid to spend your money.

That’s when they turned to us to assist them figure out their runway to achieve their lifestyle in retirement.

Mary and John’s financial goals

While John and Mary did not have lavish plans to live the high life. They wanted to live comfortably. While having the ability to travel to visit family and friends located around the country and overseas.

In our first session with John and Mary, they outlined their financial goals:

• $60k pa to cover day to day lifestyle needs
• $10k pa for travel every year for the first 10 years of retirement

Like many people we work with, they wanted enough income to live comfortably in retirement with the ability to splash out every now and again.

In other words, they didn’t want to have to think twice about spending when they wanted to go out with friends to a restaurant. Or buying a nice bottle of wine with dinner. They wanted to free from guilt about spending.

They had plans to visit various friends located around the world, which meant they didn’t need accommodation in most cases. While having the flexibility to reconnect and spend time with friends located throughout Australia.

Retiring would mean they would be able to pursue their other interests which had been neglected while they were working and had little time for.

Crafting John and Mary’s feasible retirement plan

This was the part they were struggling with the most. They had a little knowledge of the super system, but working out what applied to them and what didn’t was difficult. Like many people, they were looking at their retirement in a vacuum. Looking at their super and investments in isolation, wondering, “Are we doing the right thing and will we have enough?.

They had worked hard to accumulate approx $1.4m in assets to fund their retirement income. But the challenge was making this last through their retirement years which could easily span 30yrs or so. Without the risk of running out of money.

The first step was to assess whether they could afford the lifestyle John and Mary wanted. This entailed exploring all their options and alternatives available to them.

The traditional retirement strategy

We first went down the traditional route. Using an account based pension to fund their retirement income.

This is the main funding mechanism for retirement. They pay you a tax-free income, with tax-free earnings and you have access to the capital when you need to. Extremely flexible and easily adaptable to your income needs over retirement.

However, there are some limitations. The value of the account based pension is fully accessible under the assets test. Thus it would be a while until they were able to access any age pension entitlements. Once the funds have been used, that’s it, no more income.

Under this scenario, John and Mary would be okay financially, they’d only run out of money if they decided to spend more or they experienced bad investment markets.

They’d start receiving a part-age pension in their mid 70’s.

All up, not a bad outcome…

Maximising for income using Innovative income streams 

You may or may not know, there are many different tools you can use to fund your income in retirement. Some of these tools only became available a couple of years ago. When the government encouraged super funds to come up with better products to deal with longer life expectancies.

As with anyone we work with, we want to explore all the options which would be available so couples and individuals can make informed decisions.

This strategy involved a combination of account-based pension and a Lifetime Income Stream. The environment has changed since the old days of annuities that pay a fixed income.

A Lifetime Income Stream is guaranteed to pay an income for your life. Helping to remove the worry of running out of money through retirement. They’d still be invested in the market which would still need to be managed.

One of the greatest benefits of using such a strategy is that your assessed assets in a Lifetime Income Stream for Centrelink is reduced to 60% for a minimum of five years or age 84.  Post this, your assets for assessment purposes are reduced to 30% of the value.  This means in the right circumstances, you can access more age pension or access it earlier. This is money you don’t need to take from your own pocket.

In John and Mary’s case we ran a scenario where 50% of their assets would be placed into a Lifetime Income Stream and 50% into a standard account-based pension.

This type of strategy would see them receive an income from three sources:

• Variable income from an Account-Based pension
• Guaranteed income from a Lifetime Income Stream for life
• Centrelink Age Pension (receiving it earlier and more of it)

The outcome for John and Mary was extraordinary. They were in a position to confidently spend more money early in retirement when they had the ability to enjoy it. Based on this scenario they’d be receiving approx $85k-$98k pa until their late 90’s. Only to drop into the $70k mark post that in today’s dollars.

Outcome for John and Mary:

• An extra $15-$25k pa income to spend on whatever they liked
• Accessing the age pension 7 years earlier than a traditional retirement income
• By age 90, they have received approx $420k in more income over a traditional retirement income stream
• Income for life without the fear of running out of money

Imagine what you’d spend an extra $15-$25k on? Living it up on a few luxuries, more overseas trips, upgrading to business class instead of cattle class or helping your kids out.

For John and Mary, they would no longer need to worry about running out of money. In fact they’d have enough to upgrade their lifestyle. What a position to be in…

What could your retirement be like with great advice?

If John and Mary had not reached out and sought retirement planning from a specialist, they’d remained on the hamster wheel. Putting themselves at risk of not maximsing their lifestyle in their early years in retirement.

Their investment in seeking advice generated a massive return for them. Not only did they achieve a financial return but now had the peace of mind they’d be able to live the lifestyle they wanted in their retirement years. They also had the option to spend and enjoy more.

Retirement Planning is all about understanding all your options. Understanding how you will extract your income from your pool of assets over the rest of your lifetime. Exploring the scenarios you could consider and building your feasible retirement plan.

One that will give you the clarity and confidence to spend in your retirement years. Rather than being too conservative only to regret it later on.

Retirement Planning is not solely about investing. It’s only one tool you have at your disposal and used incorrectly can harm your retirement lifestyle.

Retirement Planning is all about how you can use your money to live your best life. While avoiding the many risks many retirees are blind too.

Many head towards retirement without the necessary planning. They leave themselves exposed to one of the biggest risks in retirement.

Running Out Of Money…

They think they will get around to it one day and one day rarely happens. By leaving it, you put your retirement lifestyle at risk.

It doesn’t have to be that way.

If you want to stop flying blind and want to avoid running out of money in your retirement years.

Book your own Retirement Clarity Call by clicking here where we’ll have a chat about your retirement challenges and provide some insights to resolve them sooner rather than later.

If there’s a good fit, we’ll book in a zoom call where we’ll complete a retirement mapping session to help you better understand your retirement gaps and brainstorm ways to close those gaps and retire with more clarity and confidence.

Glenn Doherty – CFP – Financial Planner | Retirement Planning Specialist |Retirement Planning Made Simple for aspiring happy lappers and avid travellers within 7 years of retirement

We work with people in Adelaide and around Australia virtually via zoom!

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