Request for ideas, tips from someone likely to be retrenched

Hi all

It’s likely that I’ll be retrenched half way through next year. This has made me start to think about our financial position. And I realize that it’s about time that we (wife and I) do that as up till now all of my mental energies have gone into the job with hardly any left for planning investments.

What we have done well is to save hard, pay off mortgage, pay the maximum into employer’s super and salary sacrifice a lot into an industry-based super fund. Furthermore, my very kind Aunt recently left me 450K in her will. So there is money to deal with.

I’ll be a couple of years off of being 60 and would have probably worked to 80 if nobody tried to stop me. But now I’ve been forced to think about it, maybe stopping working is not such a bad idea.

We’ve just bought a property in a very nice location and the aim would be to rent it out as a holiday home so that we could also sometimes stay and become sure that we like the area and would like to retire there. But we would have to knock down the very old cottage and rebuild – something like a fairly small 3 bedroom, very low maintenance house that works well for retired couples, either us or potential purchasers if we had to eventually move out e.g back to Sydney for proximity of hospitals etc

OK so current situation:

--- Me:
125K salary, sacrificing 50K each year
Employer pension (if I go next year) will be 42K per annum cpi index linked, taxable
310K lump sum, ETP
100K pay out for number of years of service since retrenched.
60K unused long service leave (6 months – unless I take it before leaving)
440K in industry Super Fund, low fees, 15% tax on earnings and contributions. Currently invested aggressively -- 50% Aus and 50% international shares.

--- Wife 30K income
I suspect she will want to carry on working for a few years at least :-(
Very little super
40K in Exchange Traded Funds
Money in internet Saver account, but this will go toward stamp duty, other costs and the rest into an offset account

Our house maybe 700K, mortgage was paid off (no plans to sell)
Central Coast house, bought as joint tenants for 500K
Mortgage of 400K
Offset account linked to mortgage will start with about 150K

If I am retrenched next year, my plan was (before getting any tips from the very helpful people on here, and before seeing a Financial advisor which I do plan to do):

Roll over 310K or however much it will be at that time into the industry super fund giving something like 800K by that time. Bit complicated tax wise because of not being quite 60 but I would probably convert this to an allocated pension. I would have to take out 4% per year at first (and then a higher % later), but if left aggressively invested in shares I imagine that because earnings are then tax-free that the 800K would increase if anything over 20-30 years (I’m assuming that we live a long time of course)

I would then be getting 70+ K per annum (41K cpi-linked pension and 32K tax-free from allocated pension) without much tax having to be paid. This annual income would go into paying off mortgage, or into wife’s super for her own allocated pension, or into ETFs or similar.
At some stage we would be in a position to rebuild on the Central Coast.
I’m sure there are better ways of doing it, but with what I’ve learnt over the past 2 months that’s the best I can do!)


If you were prepared to read this far, then much appreciated! I almost didn’t write the sentences just below because I feel a bit uncomfortable about it. But I think I need to tell you this so that you have the complete picture. Both my wife and I are sole children and will inherit from our parents. I hope this won’t be for a long time. And I think that we will pay for advice on how to set up some sort of family fund or trust fund or whatever so that this money can be used down the generations for descendants who might really need it. We have never lived a rich lifestyle and I can’t see that we would be happier if we tried to in the future. We have enough to work with now without depending on further inheritances. I only mention it because it might be a factor when considering how aggressively to invest even when retired, as it acts as some sort of insurance against things going really wrong.

If there is other info that is needed then I would try to give it.
It doesn’t seem right to expect any free advice, but I have seen that people have kindly offered to do this if anybody gives out the info, so I thought I would give it a go.

I will definitely also pay for a financial advisor, but having read on these boards about advisors I realize that it is critical to find the right one, so I won’t rush into that. If I think that something on here sounds good then I will ask the advisor about it. I won’t be holding anybody responsible for suggesting something that turns out badly – it will be all my responsibility, and that of the advisor. I suppose I should be asking – what would you do in this situation, and then it’s up to me to decide (after a bit more self education, and with paid-for advice) what I end up doing.

If anybody replies then let me thank them in advance so that you don’t keep seeing ‘thank you so much’ in reply to each post!

 

Hi GG

You are very fortunate. This gives you lots of options. There are a number of points I'd like to bring up. These points may or may not have any relevance to your sittuation.

1. what do you want to do with the rest of your life?
2. If you like working, why do you want to stop?
3. As you (and your wife) age, what medical problems may occur?
4. Is your plan to accumulate wealth or preserve it?
5. What are your veiws on charities?
6. Would sitting on a beach for the next 20 years become boring?
7. Do you have any unfulfilled dreams?

These kind of questions need answering before plans can be made. Then you can go to a financial planner to create a wealth strategy.

In the meantime, you can spend many(days) reading through old threads.




Cheers, Johny.


ps. Always happy to talk about index funds.

 

Hi GG,

Definitely go to an FPA registered financial planner...Now!!!

I can already see how to save you even more tax right now.

Cheers,

Dan

 

Thanks Johny
Tricky questions.
I started a list of all of the things that I would like to do, or might like to try when retired. All of the things that I would like to spend more time on. Nice long list, not sure I will have time for them all! (And I forgot to add 'sitting on beach', will add that one!) I believe I will enjoy being retired provided I work on it!
I'm being forced to stop working because money has run out in our area. It's not a certain thing though, I might be able to switch to a different area.

My wife and I are healthy, so nothing in mind when referring to medical problems. It's just that some older people need a lot of medical treatment and I wanted to keep open the option of easily getting back to Sydney if that happened to one of us.

We give to charities on the sort of scale that most people do, such as when there are collections for various causes. It would be great to get to the point where we could give on a larger scale without worrying about not having enough if something went wrong in our lives.

Not sure about accumulate or preserve wealth - I'd just like to do sensible things with what we have so that money one day running out is never a concern even if we live to 100, or if someone in the family needs a large amount for something. And how good would it be to help charities and still know that you are financially secure because of wise investments.

By the way I have been reading old posts and will carry on doing so, learning a lot very quickly. I registered to be able to post.

Index funds - anything specific to my position?
Am I/we doing anything really wrong at the moment do you think?

Cheers

 

GG,

From the sounds of it you are fortunate to be gifted with several things, not least of which is foresight.

I echo ASX Broker's tip: consult a financial planner who understands this stuff and has the resources (including relationships with tax/legal experts) to assist you and your wife in working out a plan of attack.

The most costly mistakes come through greed or haste (and often a combination of both). Develop a sound and well structured solution before you have the problem and you are far more likely to benefit both financially and from the all important 'peace of mind' factor.

You may be unable to miss an impending iceberg*, but the least you can do is inflate the rafts.


*retrenchment. Sorry, bad analogy

 

I want to do this. But having read and heard of people's experiences with planners, I'm almost frozen into inaction.

I want to find a good planner. But how?
I think I would like to keep to fairly simple and straightforward approaches to investment so that I will be able to understand what I'm doing.

I don't want any complicated schemes even if they might well make more money in the long run.

I guess at the moment I'm wondering if there is something that I'm doing that is terribly wrong, or is what I'm planning to do simply seen as sub-optimal

Cheers, thanks for that feedback
GG

 

Hi GG,

Try not to be frozen into inaction as this doesn't really help you.
Like anything, there are many choices to financial planner.
You can look for an FPA registered Financial Planner here The Financial Planning Association of Australia Limited

Cheers,

Dan

 

Not sure what foresight I've shown, but thanks anyway

When I hit the impending iceberg, do I need to find another ship (i.e another job) or is there enough there to just float in the water? As long as it's invested properly I'm hoping that it will last for as long as needed.

 

Thanks Dan
I had already looked at the list there. Do I just choose somebody who is geographically convenient? Do I just follow whatever they tell me to do?

In my situation do you think I can keep it simple and just take some overall general advice and then keep to it?
Or do you think it will be a complicated thing where I'll need continual advice every year?
Thanks again

 

Hi GG,

You can start with geographically close and speak to a few planners about what sort of things they are thinking to help you out. It's important to feel comfortable with the planner as well as the planner educating you so you understand to an extent how you are going to benefit from their strategy.

Your strategy can be as straight forward or as complex as you want. If you want your situation to be reviewed on an annual basis you are able to pay for it.

As Sim said, many financial planners are moving to fee based financial planning. Even AMP is putting pressure on fund managers to charge a fee rather than a commission according to today's (27th October 2009) industry media. All reputable financial planners are moving towards fee based advice, by 30th June 2012 a majority of financial planners will be fee based due to FPA and IFSA making the move.

Fee based financial planning is a fluffy subject as the fees can be based on a variety of ways which may include a fixed set fee based on the complexity, percentage of assets or billed hourly rate.

Most planners favour the first two as it is more transparent, I have seen hourly rates to try and justify fees this can cause other issues, "billable hours" is an issue that the legal and accounting profession is working through as billing clients for doing something for 15 minute slots is a bit silly an ongoing retainer is a preferred way of doing things in these professions moving forward.

Cheers,

Dan

 

I have a tip for you, that I recently learnt at the Australian Wide Payroll & Taxation Seminar I attended in Brisbane.

I believe it is best to use your annual leave before leaving your company. The reasons for this are:
1. While you are on leave, you accrue more leave.
2. You also receive 9% SG (Super Guarantee) contribution while on leave.
3. You do not receive a lump sum payout, which may result in having to pay more tax in a certain financial year.

From my calculations by using your annual leave before you leave the company/retire:
1. 60k leave used = 60k (gross)
2. 60/125 x 4weeks annual leave = an extra 1.92 weeks pay = $4615 (gross)
3. 9% SG = 60k x 9% = $5400

So by taking your leave you will make close to $10,000 extra. You could also instead take 6 months and 2 weeks off, so that you would earn an extra 9% on the 4615 = $415 extra.

Hope this helps

 

Thanks Sim, Dan on financial planners
I wanted to get personal recommendations but I've now found that most people retire without getting any paid financial advice!
Cheers

 

Thank you navjit6

Yes that helps
It's that sort of tip that makes it worthwhile to summarize one's total financial position in a post to a messageboard!

I had heard of people going off for months and then returning to work for a day or so. It was on my list of things to find out about, but hadn't got around to it. I presume there is no way for a company to prevent you taking the long service leave. Anyway I should check with my union about that sort of thing.

I really appreciate your help navjit6, many thanks

 

glad i could help, i dont think they can prevent it, but yeh, should find out from union to be sure

 

Just bear in mind that if you are currently sacrificing $50K per annum into super then with your employer contributions you will be over the $50K limit for this financial year.

 

Thanks for spotting that jrc!