Quantity surveyor Ian Jackson, now 71 and “pretty well retired”, sought expert financial planning advice in 2007, when he was a director of a professional surveying/consulting firm and earning a share of company profits. Initially, Greg Barter, now director and principal financial adviser at Allied Wealth, suggested various strategies to maximise Jackson’s funds, including arranging super and investment portfolios. Eighteen years later, Barter still advises Jackson and his wife Sheena, 69. “I trust him,” Jackson says. “I think it’s all about the people you deal with, rather than the company.”
“Initially, it was setting up an investment portfolio for any spare cash I had, and also looking at superannuation and putting money into superannuation,” he says, adding that his wife, then a midwife, also had some superannuation.
In the 2022-23 financial year, there were 4.2 million retirees in Australia, according to the Australian Bureau of Statistics, and their average age at retirement was just under 57. The pension was the main source of income, but superannuation has increasingly become the nest egg of choice.
Like most people, the Jacksons wanted a comfortable and trouble-free retirement, and they knew they needed expert guidance on the best ways to navigate the tangle of taxation, superannuation and investment rules and requirements.
In 2014, Barter suggested the Jacksons should consider setting up a self-managed super fund, rather than leaving their super in a large industry fund. So the Jackson family super fund was born, now also managed by Allied Wealth. A separate investment portfolio – the Jackson family trust – is also managed by Barter’s firm, and Jackson has another investment portfolio with a different company. “I didn’t want to put all my eggs in one basket,” he says.
The Jacksons now receive a monthly income from their super fund and have lived mortgage-free in their own home in Sydney’s inner-city Paddington since they sold their four-bedroom family home (with swimming pool) in the city’s northern suburbs in 2012.
Their adult children live fairly close by. “We can walk out to cafes and restaurants and pubs, that kind of thing,” Jackson says. “This is perfect for us.”
Financial adviser Greg Barter says Allied Wealth usually uses superannuation pensions as the mainstay of retirement incomes, and the amount of annual income required is mostly based on the person’s, or the couple’s, cost of living in the years leading up to retirement. This is unlikely to change much during the retirement years, he adds.
“A lot of people think their income needs will reduce once they retire or as they get older,” he says. “Our view is they typically don’t.”
Barter, who has been a financial adviser for about 25 years, says it’s important to encourage people to invest as much as they practically can in superannuation before they retire, and they should think about it early because there are annual limits on contributions.
Marginal tax rate
Australians approaching retirement age should not necessarily count on realising a lump sum from downsizing from a house, he adds. Downsizing often entails moving from a larger house to an apartment in a more central location, which can be worth about the same. Still, if there is a profit, he adds there is useful superannuation legislation that allows extra super contributions to be made from downsizing.
Investments outside superannuation can also have potential, Barter says.
“The marginal tax rate is quite generous for retirees, because you’re allowed to earn a certain amount before you reach the tax-free threshold,” he says. “Senior Australians can get tax credits, and income-earning investments – such as term deposits – can still earn a reasonable amount before there’s a need to pay income tax. If you pair that with a superannuation pension, you can earn quite a comfortable amount without needing to pay tax.”
Senior financial adviser at financial management company Strategic Wealth Mike Jeffs says the tax environment is the first thing to consider for clients thinking about retirement planning.
“The superannuation system has been specifically designed and endorsed by the government to provide for people’s retirement, so it’s very attractive with low tax rates to nil tax rates,” he says.
Jeffs says he suggests super and other investments to match the risk profile his client is happy with. Growth assets, defensive assets, alternatives, combinations of all those can be used in conjunction to manage the volatility of the returns, he says, and potentially the higher the allocation of growth, the more aggressive, the more volatile the ride will be with the potential for a higher return over time.
A portfolio risk profile could be adjusted according to how much capital there is in the super fund and how much the desired future income is, Jeffs says. “We always use very conservative return assumptions in projections,” he says. “We don’t want to dazzle anyone with amazing projections into the future. We want to provide a good, solid, level base.”