Sally Shorter

Intelligence and a whole lot of money doesn’t necessarily equal financial sense!

Situation

Sally Shorter* is a busy lady.  Single, no kids, and middle-aged with mid-tier job at a top law firm, Sally is extremely time poor.  A lawyer in the financial area, Sally is highly knowledgeable with her personal finances, and has made some good decisions for her retirement planning.  Sally then received a substantial inheritance, and spent two years with ‘organise retirement planning’ on her to-do list.  The whole time, the money was just sitting in the bank, and Sally was overwhelmed by what to do with such a sizable amount.  She knew of Self Managed Super Funds, but was hesitant to set one up due to their complex nature and keeping up to date with the ever-changing legal compliance.  Even though Sally was financially savvy to a degree, she didn’t have the expert knowledge, the confidence, or the time to invest in managing her money.

Eventually, Sally’s accountant suggested she contact JBS Financial Strategists (JBS) to advise her on her the best strategy for her situation.  Sally really needed assurance by a trusted adviser that her money would be ‘dealt with’ and handled with her best interests in mind.

Background

Sally met with JBS in May 2010 where she disclosed she was a successful lawyer earning $200k + SGC , had a HECS debt of $70k, mortgage of $70k, $650k in super, and had received the inheritance consisting of $2m in shares and a further $500k cash.  While Sally is financially well-educated, her hectic career has led her to be more of a passive investor.

Sally realised more attention needed to be given to her finances / investments with the aim of growing, managing and preserving her wealth for retirement, and the time to commit to it.

Sally had made some good decisions, such as buying into the 4 banks (ANZ, CBA, NAB, WBC) with dividend reinvestment (DRP), opening an offset account for her $70k mortgage, and salary sacrificing maximum possible of $50k (including 9% SGC) into super.

Her superannuation was invested in two retails funds and one industry fund, and Sally never really knew how her super was performing overall.  Sally wanted to ensure the inheritance was utilised in the best possible manner / structure for her personal situation and goals.

Meeting

JBS identified Sally’s key life goals:

  • 
To maintain current lifestyle;
  • To reduce working days to 4/wk;
  • To ideally retire at age 60; and
  • To have $100k/pa retirement income, plus an additional $40k/pa for travel

JBS confirmed that Sally’s risk profile was Balanced to Growth, and while she understood shares, she preferred to be invested in blue chip companies within the ASX50.

From all of this information, JBS discussed the key strategies tailored for Sally’s situation:

  • Ensuring correct structures were in place (Self-Managed Super Fund and Family (discretionary) Trust) to maximise her potential;
  • Regularly providing consolidated reports for her SMSF & Family Trust so she was updated;
  • Regularly providing direct share updates and recommendations in-line with her risk profile to ensure she was able to buy and sell whenever necessary; and
  • Regularly provide current information on share buy backs, corporate actions etc. – saving her time and hassle of administering it herself.
  • 
Manage the SMSF inline with government regulations on her behalf, in turn significantly reducing the amount of paperwork Sally has to complete herself, as well as the accounting fees.

Detailed Strategy
In order to meet Sally’s goals and desires, there were several key issues to address.

Original situation:

Superannuation across three funds – excessive fees with a lack of investment choice and flexibility.

JBS’ Strategy:

  • 
Consolidated into a SMSF giving flexibility, investment choice and lowering overall fees.
  • Recommendation to make non-concessional contribution of $150k pre 30 June, and then in July utilising the 3yr averaging bring forward rule allowing her to contribute a further $450k.  The contribution was a combination of cash and inherited shares.
  • Recommended to continue to make maximum concessional contributions, therefore lowering her taxable income.
  • Structured the SMSF portfolio with core blue chip companies with solid balance sheets, acceptable levels of debt, good dividend paying companies with franking credits (however lower on resource stocks), with a history of growing shareholder value.
  • We included portion of hybrid shares (from companies in the ASX20) to provide greater income than possible with term deposits.
  • Opened a small portion of term deposits for capital stability and security.
  • 
Opened a high interest earning cash account for ‘surplus’ cash to ensure all areas of the fund were working hard to provide maximum returns.
  • A small portion of managed funds were bought to give some exposure to international stocks (at Sally’s request).
  • Discuss Transition to Retirement (TTR) strategy to consider from age 55 and how the strategy could benefit her and enable her to further growth her wealth for retirement.
  • Manage the SMSF inline with government regulations on her behalf, in turn significantly reducing the amount of paperwork Sally has to complete herself, as well as the accounting fees.

Original situation:

HECS Debt of $70k

JBS’ Strategy:
Remove debt by utilise savings and inheritance proceeds to pay off, therefore reducing interest payments.

Original situation:

Mortgage of $70k (non tax deductible)

JBS’ Strategy:
Despite Sally already having the mortgage partially offset, recommended to pay completely off but keep facility open should the need arise to borrow funds in the future.

JBS also established a Discretionary (Family) Trust – via her accountant for the inheritance shares in order to provide Sally with flexibility and choice in terms of distributing income (i.e. to family members, etc.)




Benefits and results


Given Sally’s busy life, JBS is undertaking the ongoing management and reporting of both the SMSF and the trust to ensure the inherited share portfolio is not neglected.  Sally has 24/7 online access to see how the shares are performing in her portfolio, and what dividends are paid and DRPs.  At end of each financial year, Sally receives consolidated tax returns ready to provide to her accountant, eliminating the need to gather dividend statements and collate the information.  Sally trusts that the information is accurate and has saved time.  Most importantly, Sally (even as a lawyer) is entirely comfortable that her fund is compliant with the ever changing SMSF regulations.

Within 12 months she has achieved a portfolio income stream of dividends, franking credits and other interest of over 5% which is reinvested where possible or added to the SMSF cash account