Case Study - Peter Smith

Case Study: Age 42, Build Retirement Assets, Sell Home top up Super at age 60, and releases some funds to.


Name Peter Smith
Age 42
Married Yes
Dependants yes, aged 10,13
Spouse Scarlet Smith
Assets Liabilities
Home $1,100,00 $1,100,00
Shares $1,100,00 $1,100,00
Bank $1,100,00 $1,100,00
SMSF $1,100,00 $1,100,00

Peter, Carol working as accountants 22 years.

Carol raising children, aged 13, and 10, over schooling years.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

Purchase a home in Sydney 6 years ago, at $700,000 value now $1.1m

Help their children -deposit circa $150,000 each

Sale value in 2034 - $2.85m

Add funds say $200,000 to invest into retirement assets.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

School fees $244,000 at today’s tuition cost, finish over next 6-9 years.

Remaining balance approximately 80% of the then value will be used to “downsize” into a retirement apartment closer to the city.

Repay home loan quicker


Options to Buid Assets

Pay off Home Loan faster

One option is to repay the home loan quicker than invest into super property and other assets.

At present home loan is $500,000 against an asset value of $1.1m, therefore remaining equity is $600,000.

Make extra $1,000 pm repayment off home loan will save you $127,000 in repayments and interest over this period.

The extra payment however come at a cost, as you need to deduct tax at say 37%, so need to take out $1,639 pm or $265,000 extra from gross salary to repay the home loan quicker.


Restructure Loan Interest

Restructure your Home Loan

A simple alternate is to restructure your current home loan. Refinancing it from 5.5% to a new rate of 3.99% while keeping the same repayments reduces the loan to just under 17 years.

Just this alone saves $155,000 in total loan repayments.


Contribute to Super


Pay off Home Loan OR top-up Super

The extra $1,000 pm loan payments use a Gross salary of $1,640, alternate to place this into Super as Concessional Contributions

Super will jump $309,000 to age 60 (18 years), just making these extra contribution, rather than investing in repayment of the home loan.

Option Activity Saving/Benefit
Repay Home Loan Repay extra $1,000 pm off home loan $127,000
Refinance Home Loan Down from 5.5% pa to 3.99% pa $127,000
Extra Contributions to Super/td> Top up $1,640 pa $127,000
Refinance and Topup Cut interest to 3.99 and top up Super

$464,000

Gear Into a Share Portfolio


Pay Off Home Loan OR Gear into Portfolio Shares

An alternate is to build a share portfolio outside of Super and your home loan.

The modelled draws down $25,000 from your current home loan and investing into a “geared” portfolio of shares, while making a $1,000 pm contribution (i.e. the same as repaying off the Home Loan)


Under this structure you have no personal liability to the loan

Spread over top 200 ASX shares

Listed Index fund

Redeem in 3 days


Funds grow to $770,000, after repay loans/taxes, and invest $1k pa net value of $635,000 (over 18 years).

Reducing monthly amount to $500 pm, Funds grow, after repay loans/taxes, net value of $410,000.



Invest $25,000 from Home Loan.

Inject $500 pm ($6,000 pa).

Funds grow to net value of $410,000.

Buy a Property


Buy Investment Property

Direct savings into an investment Property. In this model we look at investing into an off-the plan apartment (new).


Net investment is $45,000 (after using a 10% deposit bank guarantee)

Balance is geared at 95%, using home equity

Fixed 4.00% loan fixed over 5 years.

Net cash generated is $127,000 over 15 years ($8,400 pa after tax).

With say compound capital gain of 4%, over 15 years.

Pre-tax gain of $455,500 or after tax of $367,000 (per income).


Apartment 6.06 – Linton

  • Price $535,000
  • 2 Bed 2 Bath
  • Net Area 88m2, 12 m2 balcony
  • Total Area 100m2
Net Income: $7800
Yield: 17% on capital(#)
Capital Gain: $7800
ROI: 120%(#)

Summary

Option Activity Contributions Saving/Benefit
Repay Home Loan Repay extra $1,000 pm off home loan

$127,000

$127,000

Refinance Home Loan Down from 5.5% pa to 3.99% pa Nil

$127,000

Extra Contributions to Super Top up $1,640 pa $127,000

$127,000

Refinance and Topup Cut interest to 3.99 and top up Super $127,000

$464,000

Option Activity Contributions Investment Value #
Invest into Share Portfolio Repay extra $1,000 pm off home loan $127,000

$127,000

Invest into Property Down from 5.5% pa to 3.99% pa Nil

$127,000

Invest into Property (x1), Super top up and Refinance Loan Top up $1,640 pa

$127,000

$127,000

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