Meet Tim and Nicole who are 53 and 49 respectively. They own and operate an independent commercial leasing and real estate agency in Perth, Western Australia. Both Tim and Nicole currently work in the business. Nicole only re-entered the workforce recently after taking some time off to raise their children.
Like many busy business owners, most of their time and energy was devoted to running their business with little time left for their own personal financial affairs.
They understand the importance of insurance so have taken out a number of different policies over the years. When it comes to super, Tim thought putting in the compulsory amount was sufficient. Nicole had accumulated some super when she was working as a teacher prior to taking time off to look after the children. She has not made any further contributions since she left that job.
It was Nicole’s return to the business that triggered a conversation with their insurance broker who suggested they both seek advice from Dan Williams, a Senior Financial Adviser with Tribel Advisory.
Some confronting facts about their financial situation
Tim and Nicole thought they were in good shape. After all, they have many different insurance policies in place. They also have an investment property in addition to their super so thought this could easily fund their retirement.
Upon further investigations by Dan, however, a number of serious issues emerged:
- Having many different policies in place and not reviewing them for some time meant:
- They were doubling up on some types of cover – paying for something they didn’t need
- They were short on some types of cover – means they are financially exposed should something happen
- Their current policies offered inferior terms and definitions compared to what they needed – means the level of protection provided was sub-standard
- The ownership of their insurance policies was incorrectly split between their business and personally. It is quite common for business owners to allocate between their business and their own personal names but getting it wrong can have serious tax implications.
- They have neglected their super somewhat so based on their age, the amount saved was very low. Even accounting for their investment property, they will likely experience a retirement shortfall.
- The retirement shortfall was more pronounced for Nicole since she took time out of work and missed out on many years of super contributions. This is a common and significant problem affecting predominantly women who take time out of work to care for their children.
- Their superannuation is currently sitting in an inferior fund with high fees and the monies are invested in a portfolio that is too risky for their tolerance.
A Spring clean of insurance policies and super
To help the couple address the serious issues identified, a strategy was put in place which involved the following steps:
- Restructure their insurances
- Nicole’s cover was upgraded to close the gap for TPD and death cover. Her TPD cover was upgraded to ‘own occupation’ which is more specific to her current needs working within their own business and performing various roles.
- Tim’s TPD and death cover was corrected as he was over insured for death and under insured for TPD.
- Tim’s income protection policy was upgraded to cover his income until age 65
- Ensured both personal and commercial needs were met with their TPD insurance
- Fully utilise the maximum contribution caps to make additional concessional contributions to their super. This will allow them to accumulate more of their savings in super and claim increased tax deductions. The financial projections show this can help them achieve their intended retirement goals in 11 years’ time, which was their target retirement date.
- Switch their super to another super fund and have this invested in a portfolio that is more aligned with their appetite for risks. They were able to save fees on the new super fund.
The aftermath – more cover, less premiums and better super
After all of the adjustments to their insurance cover, the couple were pleasantly surprised that their combined premiums reduced by 20%. The new ownership split between their business and their personal names meant greater tax deductibility of the premiums.
The savings meant they could add more to their super and build a greater retirement nest egg. They also felt reassured that their superannuation would now sufficiently cover them for the lifestyle they hope for when they retire.
The health check of both super and insurance at this time has resulted in ensuring that the couple will be retirement ready even if something unforeseen was to occur which would affect their ability to work. In the meantime, they can continue to confidently run their business and build for the future.
A key part of holistic financial well-being is having financial assurance for yourself, and your family, should the unexpected occur. Proactively planning for the unexpected events such as a critical illness, death, injury or disability will have a significant impact on your finances. After the thorough health check of their insurance and superannuation, Tim and Nicole can now look forward to a comfortable retirement in 10 years or so, come what may.