Missed Opportunities & Timing Advice

“Nothing is more expensive than a missed opportunity”

H. Jackson Browne Jr

One of my great frustrations is missed opportunities – and in the world of Financial Advice they can be found everywhere, and they can be big… VERY BIG.

Every surfer would have heard the line “you should have been here yesterday” (and it sucks to hear if you rock up in the parking lot of your local break to 1 foot wind blown slop). Everyone has probably heard “you should have been here last night”, when apparently you missed the best party in the world. But please, please don’t make me be the guy who has to say “you should have come to see me about financial advice before you <insert life event here>”.

All too often we see clients who contact us AFTER a major event, and then ask us what to do. Here are some examples:

  • I just bought my own home for $500K and locked in my rate for 3 years. Now that is sorted i want you to help me set up an investment portfolio with the $100K i have saved.
  • I just sold my investment property, what should i do with the money?
  • I just got a TPD payout and paid off my home loan debt, what do i do with the leftover money?
  • I just quit my job and retired, i want to access my super.
  • I just sold my home and downsized to a smaller townhouse.
  • I just rolled my super into pension phase and withdrew a lump sum. How does this affect my centrelink pension entitlements?
  • I just set up a SMSF, what should i invest in?

You should have been here last week!

In each of the scenarios above there are ‘hidden’ opportunities where advisers can add incredible value that amount to 10’s or 100’s of thousands of dollars in saving or investment returns. People often mistake Financial Advisors for Fund Managers and make a choice about when to visit them accordingly, but they are very very different roles and mistaking one for the other can have pretty serious consequences. So lets pull apart some scenarios and find out if those missed opportunities may have been saved by seeking advice BEFORE the big decisions were made.

“I’m looking to buy my own home for $500K and lock in my rate for 3 years. Once that is sorted i want you to help me set up an investment portfolio with the $100K i have saved”

I’m so glad you’ve come in to see me before committing – i think there are some amazing opportunities worth exploring that could save you thousands in interest & taxes, and knock years off your loan.

  • Did you know that you can split a loan between a fixed rate component, and a variable rate component? This type of arrangement gives you the certainty of locked in rates whilst allowing for extra repayments, interest offset accounts, and increasing your equity in the property.
  • Are you aware that funding investments with debt means that the interest is tax deductible? Did you know we can structure a third ‘split’ into your home loan that could be used for funding investments, whilst applying your $100k cash to paying down non-tax deductible debt on your home?

“I can no longer work due to an injury, and i think i can make a claim on my TPD insurance. My TPD benefit is $400K, so i’m considering paying off my home loan debt. I also need advice on what to do with the leftover money”

I’m so sorry to hear about your injury. I’m glad you’ve gotten in contact because there are a lot of complications with TPD benefit payments that can make an enormous difference to your outcomes. We’ll get your claim started right away to try to make this as smooth as possible for you. I also want to fill you in on the implications for TPD benefit payments.

  • If you can no longer work due to injury you’re most probably entitled to a benefit payment from both your Income Protection insurance, and your TPD insurance. We will explore both of these for you, and get claims started immediately.
  • Both benefit payments are taxed, your IP insurance at your MTR, and your TPD benefit, at 22% of your taxable component. After considering the tax implications, taking out a lump sum from your TPD Insurance may result in a heavily reduced net payment. Accessing your benefit across multiple tax years may provide a far more favourable net benefit.
  • Because your TPD Insurance was held within superannuation, the benefit is paid into your superannuation account. You will meet a ‘condition of release’ so you can access the funds, but whilst they remain in the superannuation account, they are earning returns of x% p/a, and only subject to tax of 15%. By crunching some numbers we can work out the optimal way to access the cashflow you need now, pay down debt, and leave enough funds in super to provide for your ingoing income needs.

‘I am looking to retire in 5 years time and i want information about growing my super balance and access my super’

Thanks for getting in touch BEFORE you retired – there are some amazing benefits and opportunities we can take advantage of in the next 5 years to build your retirement savings and optimise your retirement outcomes.

  • I note you have paid off your home so you now have lots of free cashflow from your salary. Are you aware of salary sacrifice? Do you know about ‘Transition to retirement’?
  • Oh, you’ve got a $200K investment portfolio outside super, are you aware that investments held within super are taxed at 15% (as opposed to your marginal tax rate) and in the ‘pension phase’ of super earnings from investments are absolutely tax free?
  • Did you know that you can make a $300K contribution into your super now, which will earn returns taxed at 15% until you’re 65, and taxed at 0% thereafter?

‘I’m considering setting up an SMSF, what should i invest in?’

I’m so pleased you checked in with us before setting up your SMSF. I note you have a super balance of $100,000. An SMSF can have setup costs of $1500 – $3000, and ongoing annual costs that are similar. These are purely ‘admin costs’, and cover mandatory things such as tax returns, accounting, audits, ASIC fees, actuarial certificates, valuation etc. $3000 in admin fees on a $100,000 balance amounts to 3% – which puts you a long way behind the 8 ball and requires some serious ‘outperformance’ to make up for the fees. This may encourage you to take more risks than you are comfortable with in order to achieve the required return, and failing to outperform may have serious implications for your retirement balance.

I think it would be worth discussing the features & benefits you are looking for , and seeing if there are any alternatives that provide similar benefits at a lower cost. Regardless of the outcome, you can make a decision with full knowledge of the options, implications, and potential pitfalls.

Opportunities for major improvement or major savings are everywhere, and they’re not even necessarily tied to major life events. Sometimes the most innocuous of events can have major implications, or provide major opportunities. I’ll leave you with one last example (with a happy ending).

A 70 y/o client of our practice recently called in to alert my colleague that he and his wife were selling their family home to ‘downsize’ into a townhouse (with no stairs). What a fortunate phone call it turned out to be….

The government made recent changes to legislation that allows ‘downsizers’ to make a one off $300,000 contribution to their superannuation account using the proceeds from the sale of their own home (irrespective of the normal age & work test limits). However, this new legislation doesn’t come into effect until July 1st 2018. Had the clients proceeded with the sale now, they would have missed the opportunity to contribute $600,000 to their super account. By waiting just 7-8 weeks to run the auction, they can make a contribution which generates $30,000 p/a in tax free income (assuming 5% returns).

Financial Advisers are not Fund Managers – we are strategists, counsellors, educators, and outcome optimisers. We produce results that help you ‘outperform’ across all aspects of your financial life, not just your investment portfolio – though some of us are pretty good at that too 😉

Don’t wait till its too late. Make sure you see an advisor before you make major decision that could affect your outcomes. Hope to see you soon!

Saul.

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