Prioritising Life Over Income: A Professional’s Wealth Strategy

Peter  49, married with 3 children in their late teens and early 20s, has been in a professional services firm all his life and a partner for 8 years. He has been very successful throughout his career and says he loves dealing with clients and ‘getting the work’ but doesn’t enjoy actually doing the crunch work behind the scenes. He believes that it’s as important to manage the politics in a big firm as it to produce the fees.The old management of the firm has now been replaced and Peter is not keen to ‘start the politics all over again’. He thinks that at his age, one slip on performance and he will be out if he doesn’t have the politics right. “If you don’t have the politics right, you don’t get a second chance if you miss a year” he said.

The Dilemma

He knows he can’t afford to retire now and just going to another similar firm would mean a whole lot of different but similar challenges. At the same time, he doesn’t want to go out on his own. They have a mortgage of $1.2m even though they have fairly significant assets including a home worth somewhere over $4m. Problem is, they want to retire in this home so the equity in it is fairly academic.

The Strategies

We mapped out different scenarios:

• “Just keep swimming” – he keeps going as long as possible and ‘plays the game’ hoping to fully retire in 5 years,
• Own business in 2 years – try to keep the previous firm happy but in reality compete in some areas. Aim to generate less but potentially have more tax efficiency.
• Corporate role – take up a role with one of the firm’s major clients for 10 years

In addition, a number of strategies made it easier to accumulate capital over the rest of his career. These included:

1. changing his super fund to a lower cost option saving him 0.54% p.a. (he was simply wasting money by paying higher admin costs),
2. transferrinng his life insurance to super,

• maximising super contributions,

1. setting up some rules of investing and a ‘constructed’ portfolio based on probabilities which should add at least 1% per annum,
2. tracking their spending which ended up reducing it by $15,000 in the second year.

The Outcome

Peter decided that going it alone would be too stressful and he would still have to do a lot of work that he didn’t enjoy. So he decided to hang in and deal with the politics in the short term with the view to having an option to go out on his own in 2 years.The cash flow modelling showed that all he would need to earn after any business expenses was $300,000 p.a. for 15 years. On this basis, they would be able to retain their standard of living until age 75 after which either a reduced lifestyle expenditure or some extraction of equity from the house.