Case studies

Wealth Foundations’ clients

Our clients are savvy people, from different walks of life.

If there is one thing they have in common it is that they all agree it is not a good use of their time to become part time personal financial planners. Rather, they consider they are likely to be better off focusing on what they are good at and / or what they enjoy. That list is long, but could include family, friends, career, hobbies, community and leisure activities.

While privacy and confidentiality prevents us discussing actual clients, the following provides profiles of people that are benefiting, or would benefit, from our strategic approach to personal financial planning. You may recognise someone you know or someone like you!

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Peter and Amanda Brown – “the world’s their oyster …”

Peter and Amanda were married two years ago. Peter is now 35 and Amanda is 32.

Peter is a successful investment banker, while Amanda has been a primary school teacher for the past 10 years.

The Browns are keen to start a family and would like to have at least two children. It is intended that on the birth of the first child, Amanda will leave her teaching job. Ideally, she will stay at home at least until the children are in secondary school. Amanda has just found out she is pregnant.

To date, money has never been an issue for the Browns. They drive nice cars, have regular overseas holidays and dine out regularly. Despite this, their joint incomes have enabled them to own outright a nice apartment that they currently live in. They also have some modest investments outside superannuation.

But they appreciate the arrival of children will change their lives considerably. In fact, they have begun to think how different the next 10-20 years will be and have sought our advice to discuss a number of issues that have become top of mind, including:

  • The current apartment is too small for the expected growing family. They will need to buy a larger house – how much can they afford? Should they sell the apartment or hold on to it as an investment?;
  • A mortgage will be required to finance the new house – are they better paying off the mortgage as quickly as possible or is maximising Peter’s super a better first use of surplus funds?;
  • Should they send the children to private school from Kindergarten or only for secondary school? What are the alternatives likely to cost?;
  • Peter had always thought it would be great to be able to retire at age 45 if he wanted, but he had never considered the impact of children on this aim. What is a realistic target for "financial independence", based on reasonable assumptions?;
  • Will it be necessary for Amanda to go back to work for Peter to meet his financial independence aims? What impact on the Brown’s overall financial position would Amanda returning to teaching have?;
  • In view of their relatively young age, hence long investment horizon, and Peter’s high expected income, should he be borrowing to invest to potentially accelerate wealth accumulation?;
  • Given Amanda is now pregnant, how would she and her child cope in the event Peter died or was severely disabled – is the Brown’s risk protection adequate?

The Browns are at an age and stage of life where long term outcomes can differ considerably depending on the quality of decisions made now. The potential benefits of establishing solid foundations on which to build cannot be overstated.

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Dr Bill Green and Dr Susan White – "make or break ..."

Bill and Susan met at university in medical school and married 16 years ago. Bill, age 46, is a respected cardiologist and works full time. Susan, at 44, works two days a week as a general practitioner.

They have three children, Ben, aged 13, Sarah, aged 11 and Simone, aged 8. All attend private schools and are expected to go onto university – Bill and Susan anticipate meeting all university tuition costs.

They have a modest home in a nice suburb, but are considering spending at least $600,000 for extensive renovations to modernise and extend the home to meet the demands of their growing family. This would see the current $100,000 mortgage rise to around $600-$700,000 by the time the renovations are complete, provided they remain within budget – an unlikely scenario.

The Green-White self managed super fund owns Bill’s consulting rooms that are possibly worth $500,000 – the fund’s other assets are $50,000 of Australian shares. Bill’s practice is carrying debts, including leases, of about $300,000.

They also own an investment unit bought in Bill’s name for $600,000 a couple of years ago when property markets were strong – they borrowed $550,000, interest only, to finance most of the purchase. The unit is probably worth no more than $500,000 today but, as Bill and Susan console themselves, it provides some sizeable tax breaks.

The family has a very nice lifestyle, driving luxury cars, eating out often and going on regular holidays. Bill and Susan have at least one overseas trip a year, combining a medical conference with a holiday in a desirable destination. Most of their close medical colleagues and other friends, in apparently similar financial circumstances, are living similar lifestyles.

From the outside looking in, the Green-White’s are doing very well. However, potential total debt of about $1.5-1.6 million, rising school fees as children move into secondary education, Bill’s hectic work pace and his idea that they should buy a holiday house where he and the family can wind down on weekends cause Susan to have some concerns, including:

  • While Bill enjoys his career challenges and success, for how long will he have to continue at the same pace before he has some choices – for the first time ever, he has recently complained that he is feeling tired;
  • If they do the renovations, what does this mean for Bill’s work choices?;
  • Does Bill’s holiday house idea make good sense and would it be a good investment?;
  • Does she need to increase the amount she works – it is not her preferred option, but is it the only way to give Bill the breathing space she thinks he needs?;
  • Should they be making greater use of superannuation or is surplus cash better used to reduce the potentially increasing home mortgage?;
  • How generous should they be to the children during their teens – should the children work, should Bill and Susan pay for mobile phones, should they buy the children cars etc?;
  • How would the family cope if either Bill or Janet died or was seriously disabled?

Bill and Susan are at the crossroads – if they keep on rewarding themselves with the fruits of their current success without an eye to the future, their choices may be severely constrained in later life. However, if they take stock of their position now, agree their longer term priorities and make some smart decisions, the opportunity exists to considerably enhance their financial flexibility.

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David and Anne Black – “a change in direction …”

David is 56 and Chief Financial Officer of a Top 200 listed company. He has worked in medium to large corporations for the past 20 years, after leaving a Big 4 accountancy firm in his mid-30’s. Five years ago he was hoping that he would now be under consideration for the chief executive position. But for a number of reasons, this opportunity appears to have passed him by and he probably would now not accept the position, even if offered.

David has become a little weary of the corporate “cut and thrust”, the long hours and the never ending demands of external and internal stakeholders. With the current chief executive to retire in the not too distant future, he sees it unlikely that he will want to prove himself to a potential new chief executive with a preference to appoint a previous trusted colleague to David’s role.  

He proposes to use the next two years or so to figure out his career and other lifestyle options, to set himself up financially and ease himself out of his current role, ideally with grace and a reasonable payout.

His wife, Anne, is 54 and on the committee of her golf club and active in a number of community organisations. She enjoys her life and has no aspirations to return to the paid work force. She also does not like the idea of David having too much time on his hands and cramping her style – she is keen for them to be able to do more things together but is concerned that he winds down from his current busy corporate life in a measured way.

Their daughter, Gemma, is 24. She has completed university and is employed full time. While she currently lives rent free at home, it is likely she will move into a shared house with friends within the next 12 months. Their son Andrew is 21 and currently completing his final year at an interstate university and is unlikely to return home to live. David and Anne are meeting all Andrew’s university costs.

David and Anne have a very nice home that they own outright, that more than meets their requirements – in fact, given the expectations for their children, they are likely to be “empty nesters” soon. Despite a very good quality lifestyle, David’s remuneration is such that cash inflows comfortably exceed cash outflows.

Between them, the Blacks hold over $2 million in superannuation. David also owns $1 million worth of shares directly in his company and, at current prices, his unvested company shares and options are worth another $1 million after-tax. They also have $200,000 or so in bank accounts and other miscellaneous investments.

Issues that David and Anne wish to explore include:

  • How much investment wealth do they need to accumulate to be able to support their current lifestyle when David stops working?;
  • If David left his current job in the next 12 months, how much would he need to earn from another role to be confident of being able to retire at his age 65?;
  • Should David continue to hold his company’s shares when he leaves – in fact, a question he should be asking is whether he is already overexposed to his current employer and what should he be doing about it?;
  • What type of support can they afford to give to their children (e.g. to purchase cars or to make a deposit on a first property), without constraining their desired lifestyle?;
  • What would be the implications of selling their existing home and purchasing a nice apartment closer to the city or along the beaches – will this release funds for investment or consume available investment wealth?

This is an exciting but potentially daunting time for David and Anne, as they are about to enter an entirely new phase of their lives. The question is, do they stumble into it or do they plan for it?

The decisions to be made are significant. Made poorly, in five years time they may find themselves making significant downward lifestyle adjustments because they are not in a position to recover from unanticipated adverse financial outcomes. Made well, they will protect themselves from risks that are avoidable and approach what research has shown are the happiest years with well founded confidence.

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Brian and Cynthia Grey – “much better late than never ...”

Brian is 65 and is a director of two listed companies. He has been a company director since age 55, when he retired as a well regarded partner of a major law firm. He also does some private consulting and is on the board of a sizeable not for profit organisation.

His wife, Cynthia, is also 65. With children off her hands for the past 7-8 years and having retired 10 years ago from her physiotherapy practice, she has developed an enviable lifestyle, playing golf, bushwalking and socialising with a core group of girlfriends, gardening, and actively contributing to community events.

When Brian first became a company director ten years ago, he made a promise to himself and Cynthia that he would retire at age 65, so they could then spend more time travelling together and developing mutual interests to share into their “old age”. He has enjoyed his active work life but over the past 12 months has not been responding to increased demands with the enthusiasm of five years ago. He has decided to relinquish both corporate boards and cease his consulting work in the next 6-12 months.

However, he has not given serious thought to how mentally and financially prepared he is for the proposed abrupt change in lifestyle. With his three children now all married and the first of what he hopes is ultimately several grandchildren on the way, he knows he is looking forward to being able to have more family time. But he knows he needs to consider what else it is that will give him real purpose over the next 20-25 years and, perhaps, beyond.

Brian and Cynthia have always lived well, never wanting for anything. They have not really considered how much their current lifestyle costs and what financial demands the future may hold. Adequate money was always available whenever they needed it.

They have a nice home worth around $4 million that is debt free. It is much larger than they need for themselves but will cater well for the expected expanding family gatherings. They have about $4 million in investment wealth, held both inside and outside superannuation, heavily oriented to higher risk growth assets (i.e. shares and property). Given that this is the sum of the financial resources to see them through the rest of their lives, Brian and Cynthia are now keen to explore such questions as:

  • How much does our current lifestyle cost?;
  • What type of lifestyle can we afford?;
  • Is our money invested appropriately, given our objectives and that it is all we have?;
  • Should we be considering selling the home, in order to be able to put more funds into investments – is there much to gain, particularly given Cynthia’s love of her garden and expectation of sharing the home with the grandchildren;
  • What, if any, financial support might we be able to give to the children, or the grandchildren, without jeopardising our lifestyle;
  • How should our wills be adjusted to reflect the imminent arrival of grandchildren?

Even though the Greys may appear reasonably well placed, financially, to enter retirement, it is a pity that they have left it so late in the day to start thinking about whether they can afford it – but, better late than never! Without knowing any more detail than provided above, it is apparent that a more strategic approach to thinking about both their finances and their lifestyle would see them better placed to make the most of the next phase of their life.

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Bruce and Beverly Teal – “handling wealth with wisdom …”

Bruce and Beverly Teal have just sold their internet recruiting business to a major participant in the industry for $30 million. At ages 53 and 51, respectively, it is a well deserved reward for almost 15 years of hard work. A condition of the sale contract is that they remain with the business, as consultants, for 12 months, and there is a 3 year non-compete clause.

Bruce and Beverly have no experience with such a large amount of money. For the first five years of the business they battled just to pay the bills and feed and clothe their young family. The next five years saw rising profitability, but most was re-invested to ensure growth could be maintained. It has only been in the past 5 years that they have been able to extract a good quality living, allowing them to purchase a nice home (but with a large mortgage) and afford to send their two children to private schools.

However, they are not about to let their new found wealth change their desire to continue to learn and do something that they see as worthwhile with their lives. In fact, Bruce has been tinkering with ideas for another unrelated internet business, while Beverly wants to go back to university to complete a masters degree in psychology and, then, perhaps, a doctorate.

The Teal’s wealth is now well beyond that required to meet their ongoing needs. They are concerned that the surplus is applied in a purposeful way, but they do not want to be consumed or distracted by it. They want to use it to help their children, but not to spoil them. They would also like to give back to the community but, typically, in a strategic well considered manner rather than haphazardly.

Major issues the Teals wish to have considered and managed therefore include:

  • How much can we afford to give to our children and/or selected worthwhile causes, without affecting our desired lifestyle?;
  • How much financial support should we give to our children, so they do not become overly dependent on us?
  • What is the most effective way to give – in terms of tax effectiveness, protecting children from future "opportunists" etc?;
  • How should the wealth be invested to meet our objectives?;
  • How should our affairs be structured to ensure our wealth can be transferred effectively to the next generation?

The Teals feel like they have won the lottery, except they appropriately credit their “good fortune” to hard work, rather than good luck. They are smart people who want to use their wealth to enhance theirs and others’ lives in a considered way, rather than make drastic, out of character lifestyle changes. They appreciate the benefit of being able to share their “predicament” with a trusted third party.

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Margaret Pink – “looking beyond the trauma …”

Margaret is 55 and has recently received the settlement of her divorce from her husband of 29 years, Greg.

The settlement amount was $5 million. From this, Margaret has purchased a new residence for herself and her younger, 22 year old daughter, Nicole, costing $2.2 million. Another $300,000 is to be allowed for stamp duty, some minor renovations and a new car, leaving $2.5 million to be invested to meet most of Margaret’s future lifestyle needs.

Margaret is working part-time as a vet, and has been for the last 6 years – she earns about $50,000 a year. When she was married, she did what she liked with this money – buying clothes, lunches with girlfriends, taking her daughters to concerts etc. Most of the day to day expenses of running the household were met from Greg’s income – Greg also took responsibility for the overall family finances.

The separation process is traumatic enough for Margaret. As she now tries to look forward to the rest of her life, the requirement to take responsibility for her financial future is a further source of stress and considerable apprehension. Before her marriage, she was comfortable with money management, but those skills have not been practised or updated for 29 years.

However, Margaret has no desire to become a financial expert – there are other more important areas of her life that she wants to focus on. She knows she needs help to plan her financial future – she wants a sounding board, someone she can trust, someone who is concerned not only about ensuring her investment wealth is handled wisely, but about her and her aspirations.

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