We’ve all made that crazy, quick decision to buy something special. And then wondered at leisure if we could afford it. That’s what happened with Aaron and Julie. They booked their dream trip to South America – and immediately had buyers’ remorse when they realised the significant hit this would be to their retirement affordability. The cancellation costs were astronomic, so they decided to see if there was any way of reversing this retirement income blooper. Fortunately, there is.
Andrew Dunkerley is one of the team of advisers who meet with everyday Australians at Retirement Essentials, supporting them to understand their options and ways to make every cent count. Perhaps one of his strongest characteristics is his empathy and refusal to judge hasty money decisions. He’s a problem solver who likes to listen, explore and then respond with ideas for members who may not have been aware of all the rules at their disposal.
Andrew grew up on the northern beaches in Sydney. His first job was as a trolley-boy at the local Franklins supermarket. He still loves Sydney beaches and goes ocean swimming as much as possible. After hours he can be found volunteering on a committee to help those with special needs. He says his life balance is in great shape!
‘I considered becoming a teacher, like my dad. But I saw what happened to him after years of strikes and felt there was a better career path for me. After specialising in maths and science at secondary school, I was a bit stuck. My next part-time job in a bottle shop introduced me to the commercial world. This led me to an interest in marketing, but it was the money side of my business degree that was most enjoyable. I really loved learning about the way money works and found this was something that a lot of people wanted help with. My many years in the industry super funds sector helped me to hone my skills in listening and advising.
The basis of everything I now do is to help people achieve what they want to get out of life, in the most efficient way possible, but also in a way they are very comfortable.’
There’s no such thing as a risk free investment nor a risk-free retirement. Andrew acknowledges this, but says,
‘My job is to help people understand the different degrees of risk related to their different options and to help them to choose a risk setting which aligns with their values and their temperament.’
What happened with Aaron and Julie?
Aaron is an auto-mechanic and Julie a teacher’s aide. They’ve been working hard for years and are set to retire in September. Aaron is 69 and Julie 68 and both are residents of Australia, so they meet the requirements to apply for the Age Pension. Having booked their big trip, they are left with less than $10,000 in financial assets. They both believe the trip matters a lot – having lost a few friends over the past years, they want to have an adventure together and to create some fun memories before they get too much older.
Do they still have options?
Given their assets and lack of income, they should have no difficulty qualifying for the Age Pension and will receive, combined, $45,037 per annum. They believe this amount is about $10,000 shy of what they really need per year to maintain their home and live a reasonably comfortable life. Neither of them feel fit enough to continue part-time work due to the physical nature of their current work.
Andrew decided to model the Home Equity Access Scheme (HEAS)
HEAS enables an individual to receive up to 150% of the full Age Pension. After the couple spends $35,000 on their holiday they’ll have almost no money left, meaning that they could potentially receive up to $67,284 from HEAS for a period of time. This would allow them to live a modest retirement ($55,000) until Julie turns 90. This amount meets what they believe will be an adequate amount in retirement. Essentially they will be adding a $10,000 buffer to their full Age Pension payments every year.
(The time for HEAS varies from one individual to another and is based upon how you receive each year; how much you are already receiving and the value of your house.)
Next steps
Aaron and Julie had heard of the HEAS scheme, but didn’t know much about the detail nor how much they could receive (last week’s article comparing a HEAS and Reverse Mortgage is a good starting point if you, too, would like to better understand this option). Andrew explained how this scheme works and that they can choose to receive the maximum amount (150% of full Age Pension) and can even invest this money and potentially earn a higher return. Or they can take a reduced amount and use it purely to cover anticipated household expenses.
Andrew was as happy with the outcome as Aaron and Julie were:
‘They walked away from the meeting much calmer. They were also able to overcome the guilt associated with the trip they are about to take and hopefully enjoy it to the fullest extent. My role is to work out how to unlock what people want the most, as easily as possible in a way that they stay in control of all the necessary decisions. That’s what I love most about being an adviser. And if I get a postcard from Rio, then I’ll call that a bonus!’
Have you ever made a big purchase that has destabilised your retirement income?
If so, how did you manage the fallout?
Because Aaron and Julie were at a loss to know how to approach their retirement income needs they benefitted from the Strategy Consultation which allowed Andrew to diagnose their needs and to share some modelling and specific strategy options with them. Neither of them had previously considered using their home equity as a solution, but when they learned how HEAS operates, they felt comfortable with an option backed by the Federal Government with a very low interest rate. When you are unsure of next steps, it’s often smart to take a step back and start at the beginning.
Aaron and Julie were very specific about the type of advice they were after. But if you are at the beginning of your retirement journey and unsure where or how to start, a Retirement Health Check will allow you to explore where you are at right now and how you can fully understand your future options to maximise your savings and entitlements.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
