Phil is a fuss-free kind of guy; he was never into glitz and glamour and didn’t see the need in spending money frivolously. He had a fulfilling career in public service working for Victoria Health and he enjoyed his job, he was good at it, and he earned a reasonable salary.
Living on his own with no dependants, Phil found that at the end of each year, he had saved a significant amount of his salary after living expenses. He kept it in the bank and was earning little to no interest. Although Phil liked seeing the money in the bank, he wasn’t sure he was making the most of these savings.
At 55, he was ten or so years from retirement age, so he wanted to ensure he could secure his financial future in preparation for that day.
Phil was referred to Tribel Advisory by a trusted friend at work to discuss ways to make the most of his savings. He wasn’t interested in risky investments but was keen to ensure his money worked as hard as he did, so he would be well set up for his retirement.
From little things, big things grow
Brian Rafton was excited to be working with a client like Phil, who lives frugally and inside his means. He had no debt, he only purchased what he needed and what he could afford, and each year he would have surplus savings from his wage – which many would be tempted to splurge and spend on a lavish holiday or fancy new car.
Brian was determined to ensure that Phil lived a good and fruitful retirement as a reward for all his frugality. Phil gave the go ahead for Brian to devise a plan for his future, and Brian began by conducting a review of his current superannuation fund, and his earnings and savings. Phil received a small inheritance of $150,000, so this added to the opportunity to grow his retirement nest egg.
Brian put together a comprehensive retirement readiness plan that would activate the inheritance, minimise tax, manage cashflow and use the excess cash to grow Phil’s retirement savings.
Concessional Contributions and Salary Sacrificing
Although salary-sacrifice arrangements reduce the salary amount on the Payment Summary from your employer, the amount of salary packaged in these types of arrangements is still reported to the ATO by the employer as a reportable employer super contribution. This means that the contribution made by your employer remains the same, but your taxable income will be reduced. Salary sacrificed contributions to super are concessional contributions and are taxed at 15% which is a lesser rate that what was being paid on Phil’s income.
The plan allows Phil to continue to contribute in the form of salary sacrifice and is still is making additional super after tax contributions as well as non-concessional once used the maximum allowable amount as concessional.
The aftermath – Ready to ‘live it up a little’
Year on year, Brian has been able to assist in growing Phil’s financial position by growing his superannuation and reducing his personal tax to a lower tax bracket.
Starting with $350,000 in 2008, Phil’s retirement savings have grown to $1.6 million in 2022. Not only that, Phil pays minimal tax on his personal tax return at 21% including Medicare.
Phil is now at retirement age, but in true Phil style, he still works three days a week, continues to make additional super after tax concessional contributions, and once he has contributed the maximum allowable amount, he switches to non-concessional contributions. He still lives frugally day to day, but the good news is he’s taken Brian’s advice to ‘live it up a little’ and schedule in an annual holiday. He has booked himself a business class holiday to Europe to visit family and friends and he plans to make a habit of it. A little bit of preparation and planning goes a long way. If you’ve started to think about your retirement, make the call and get a plan that will make a big difference.
