Optimizing Superannuation & Retirement Planning

Optimizing Superannuation & Retirement Planning

Component Two (30 Marks) Due May5th 9.00am 

Mathew and Bettina Watson have come to you for advice about their Superannuation

Mathew is 38 and works for a road construction company. He has an accumulation fund account with an Industry based fund. As part of the Enterprise Bargaining Agreement at his work his employer pays an amount equal to 12 % of his salary into superannuation. When he joined the fund he was automatically placed into the default investment choice, which is a balanced investment choice. Mathew has remained in the balanced investment choice because he has never taken time to work out what is the best investment selection for him

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In the past year Mathew’s fund has produced a positive nominal return of 8% before fees and taxes.

In 2014 Mathew earned $73,400. He has a balance in his Superannuation account as at 31st December 2013 of $268,420. Mathew salary sacrifices $5000 per annum of his salary into Superannuation.

Bettina is 43 years old. She is an editor with a publishing company and works 2.5 days per week and does not want to increase her working time as she has ongoing charity work which she is keen to continue. Bettina is in an accumulation scheme. With a retail fund and her employer contributes the standard superannuation guarantee into her account. Bettina is also in a balanced investment choice which produced a return of 11% before fees and charges..

In 2013 Bettina earned $39,400. She has a balance in her Superannuation account as at 31 st December 2013 of $247,612. She does not salary sacrifice

Both Mathew and Bettina intend to keep working until Mathew reaches his preservation age.

They have $140,000 in investments assets outside of Superannuation. It consists of a Holiday home (purchased for $70,000 in 1995) They have a mortgage on their home of $95,000 and have 10 years to go with a current rate of interest at 6.75% pa. They have one child who is independent. They currently generate a surplus of $10,000 per year (the current expenditure included the current P & I loan repayments of $13,863 pa). Their great passion is dinning out. They estimate that they would spend approximately $30,000 pa on restaurant meals and entertainment.

Retirement for them seems a long way off however they have decided to set themselves a target. A friend has suggested that if you can generate a retirement income of 65% of your pre-retirement income then you should have a fairly comfortable retirement. Mathew and Bettina have no idea whether this is an achievable target or not that is why they have come to you for advice.

Other assumptions:

  • Inflation rate 2.5%
  • Nominal increase in income of 6.09% for both Mathew and Bettina.
  • Mathews Industry fund charges a 1.5% fee which is a direct deduction from the nominal return
  • Bettina’s fund charges 3% which is a direct deduction from the nominal return
  • Your interview with them was at the end of 2013 so all modelling would be done in the 2014 calendar year (1/1/14)
  • Funds invested in retirement are expected to generate a nominal return of 7.11% after fees have been deducted.
  • All superannuation contributions are made in December of each year and therefore do not attract earnings in the year in which they are made.

Your requirements: 

Mathew and Bettina would like a report, which models & displays the following information:

A: How much can they expect to accumulate in Superannuation by the time that they retire at age 60 & 65 respectively based on their current superannuation settings. You will need to model Matthew and Bettina’s superannuation separately.

  • PART A for Mathew should display on a maximum of 2 A4 spread sheet pages
  • PART B for Bettina should display on a maximum of 2 A4 spread sheet pages.
  • Therefore a maximum of four pages

B: The retirement income stream, expressed as a percentage of their combined pre-retirement income that they can expect in retirement based on the accumulated amount you determined in part A above. This should be based on Bettina’s life expectancy. [Note: this can be calculating using the Payment PMT function in Excel – we are not asking what type of income stream they should choose]

C:What strategies can you suggest for boosting the couples retirement income?

The client have three strategies / concerns that they would like you to explore however they expect that you have a number of additional strategies that you wish to investigate and report on.

* Mathew is trying to convince Bettina that her Superannuation would be better placed in an industry fund rather than a retail fund. They would like to hear your views on the matter.

* Mathew has been trying to convince Bettina that a ,000 salary sacrifice into superannuation is a much better idea than a ,000 after-tax contribution into superannuation but he has not had much success. He would like you to explain the Bettina the benefit or otherwise of a $10000 salary sacrifice versus a $10000 after tax contribution

* Bettina believes that they should sell the holiday home and place the proceeds of sale into either Mathew’s or her Superannuation fund.

[Note: You are required to explain and discuss your strategies AND provide some financial modelling of results] 

A separate spreadsheet SHOULD be included for each scenario you might consider in this part. If you have a preferred scenario and /or you want to demonstrate to Mathew or Bettina that thinking behind your strategies you can include one spreadsheet in this part —– it must however print on one A4 page. Other results for Mathew and Bettina must be demonstrated through the use of tables and graphs or charts etc.


Note:EFFECTIVE communication is the key. Your written commentary to this part should not exceed 2000 (+/-10%) – not including the spread sheets.

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