Case study- business owners preparing for retirement

Cara Brett 12 July 2016
Welcome back to the CASE STUDY Series.

This week we are going to talk about the special requirements for business owners who are preparing for retirement.

Trudy and Brian are 56 and 55 years old, who’s children are grown and left the nest and they have children of their own. Three years ago Brian started a business as an electrician after spending 25 years in the industry working for others. Trudy works part time in the business doing the administration and bookings for clients.

A couple of years ago Trudy had cancer which leaves her tired if she works more than 25 hours a week. Since starting the business Brian’s business is booming given his great reputation in the industry and the industry contacts he has. He is booked solid throughout the year, but unfortunately has neglected his superannuation balance since starting the business.

He was speaking to his accountant who suggested that he should make contributions to his super fund to reduce the tax he was paying in the business, but he didn’t know if they could afford that or not.

They had worked hard and recently paid off their home which they intend to keep into their twilight years as they put it. They would however like to put in a pool if they could afford it, but didn’t really know if they should wait.

The business is set up in a trust and Trudy and Brian are currently taking 50% distributions each. Based on the profitability, they are earning $70,000 each from the business income. Their lifestyle expenses equate to $60,000 pa and they are comfortable on that amount. They think this will stay the same in retirement, and they both want to retire fully when Trudy reaches age 65 (in 9 years).
In order to address their situation, I need to look at the following:

  • Current superannuation funds
  • Retirement adequacy – will they have enough to retire in 9 years
  • Cash flow to decide if they can afford a pool
  • Reducing the tax that they are paying through the business.


  1. The first thing I wanted to do was assess their superannuation funds as they had been neglected for a few years. As they are getting older and closer to retirement, it’s important to make sure the investments aren’t too ‘High Risk’ (ie high levels of fluctuation) as we want to be confident on the amount available when we need it most. Charles’s fund had been set up a long time ago way back when he was employed and he had a corporate super fund. He has been paying fees to a financial adviser for about 15 years and had never heard from him. He had no idea that was happening or that the fees were quite high. As he has been working for many years, he had managed to accumulate about $475,000 within the account, all of which was invested in the default balanced investment.
  2. Trudy has an industry super fund that she has never really looked at before, and has $160,000 within it, again in the default balanced investment option as she has never thought to change it. We recommended 2 new super funds, with substantially lower fees and investments that are more sophisticated to take advantage of the next 9 years before retirement. We shut down their old funds and transferred across the money for them. We did consider a SMSF for the couple, however as they didn’t particularly want to be heavily involved in their super, we decided a SMSF was not the best structure for them.
  3. Secondly we need to address retirement adequacy for the two of them taking into account any Centrelink benefits available. In order to ensure that they have $60,000 pa to live on, we need to make sure they have $936,000 in their super funds combined. From age 67 they may be eligible for some aged pension benefits, so for the first few years they are relying solely on their retirement balance. Currently, based on their projections, they are only anticipated to achieve about $780,000 meaning there is a short fall of $156,000 that needs to be addressed.
  4. We recommend that they each contribute the maximum into their super funds each year. This is $25,000 each (based on the Government budget changes in May 2016). This reduces their combined take home pay from $100,906 to $76,456 pa. and saves them each $8,950 each per year in income tax, and increases their retirement balance by $50,000 pa, but still allows them to sustain their lifestyle expenses of $60,000 pa.
  5. They do however want to put in a pool at some stage. With the excess income they receive each year (approx $16,456) they should be able to install the pool within 2 years with cash. Given they are contributing the maximum they can to super and still have left over income, this is the best option for them going forward. Once they reach age 60, they also have more options available to them to reduce tax and access some of their superannuation funds.
  6. As we manage their finances ongoing for them, we will assess their cashflow and tax position each year and work in with their accountant to get the best possible overall position for them in retirement. It’s important to assess the cash flow position as well as the superannuation balance, retirement adequacy and tax payable all together, because these factors all effect each other.

The good news about Trudy and Brian is that they have 9 years to do some decent work on their retirement balance and can substantially reduce the amount of tax they are paying along the way. As we do with all of our clients, we continue to invest their super funds for them over the years to make sure that as they age, the investments are lower risk so that we have more certainty for their retirement day. We will do a complete annual review with them each year and work with their accountant behind the scenes to assess the tax position each year and make the best contributions to ensure that they have enough money to live on, save tax and save for retirement all at the same time.

If they decide they want their pool sooner, then we will make that happen for them by adjusting our recommendations and moving forward.

This post is from our resident Financial Planner Cara Brett, check out her details in the About Us section.

Posted in: Cara BrettFinancial Planning, and Investments

About the author: Cara Brett

Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.