I first met Keith (name changed to protect the guilty) about 5 years ago. He had recently moved to the area and was working part-time in a local retail outlet. His wife also worked full time in retail, but in a former life they had operated a small business interstate for some years.
Keith’s attitude to risk was off the chart. The couple had a home loan of around $400,000 on property worth about $500,000, and had $750,000 in cash in the bank (which had been there for a couple of years). This money was burning a hole in Keith’s pocket, and he initially came in asking me to assess the viability of a couple of extremely risky investment schemes he had come across. He “only wanted a second opinion” before going ahead, he was “very competent financially” and just wanted me to validate his already made decision.
The couple’s super totalled $600,000, with $400,000 of this being Keith’s and $200,000 his wife’s
We recommended that some of the surplus cash be used to extinguish the home loan before Keith did something stupid with the money (he did have a track record). Assuming a 4% home loan rate this will have saved them maybe $80,000 over the five years we have been working together. The remainder of the cash we recommended be contributed to super.
We recommended a Transition to Retirement Strategy for Keith to take advantage of the zero tax rate on earnings on his now $600,000 super. If we assume a 3% taxable earnings rate, we could estimate to have saved him perhaps $2,400 per annum in tax, or maybe $12,000 over the five years.
We recommended a salary sacrifice arrangement for Keith’s wife, boosting her super balance and effectively saving her perhaps $5,000 in tax each year, or $25,000 over five years
We completed a needs analysis, and identified that they had insurance cover via their super which was surplus to their needs and was costing the couple around a $1,000 per annum in unnecessary premiums, saving them $5,000 over five years
We had several lengthy discussions with the couple’s accountants in relation to the deductibility or otherwise of our fee, and were able to convince them that it could be claimed. Tax saving on this around $1,800 per annum or say $9,000 over the five years.
Total financial benefit of strategies we recommended (excluding any revenue differences), over $130,000. Our fees over the five years $30,000.
Keith is no longer a client, his industry fund out-performed the fund we recommended this year by nearly 1%. Who knows about the past or the future?
I wonder who is going to advise Keith that his wife’s salary sacrifice will take her over the new concessional contribution limit?
Funny Old World
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