What's On News The intern, the general practitioner and the specialist surgeon

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The intern, the general practitioner and the specialist surgeon

Sunday 13 November 2016

The Intern:
Age 26, single, still paying off HELP loans. Limited residual cash. Good career prospects.
Retirement at age 60. Based upon today’s cost of living and the gradual depreciation of our dollar has set an objective of $3 000 000 net equity by year 2050 to allow a comfortable retirement.

Superannuation will play an important role in reaching the objective, however they recognise it will not be enough to cover financial needs at retirement. They have factored in the rule of 72 where if our dollar depreciates by two per cent each year through inflation, in 36 years it will most likely have a buying power of 50 cents in today’s terms.

The amount of capital required today to provide for a comfortable retirement is stated by the Federal Government to be $1 500 000, excluding the family home, to provide an income of $75 000 per annum after tax.

Capability to reach the objective is dependent upon how much disposable income there is to invest to supplement the superannuation benefit. At this time this is limited therefore the initial cash outlay is conservative.

As earnings increase they become more able to invest in property and to benefit from the capital growth and taxation allowances available. There is no other investment available with the same degree of self control with equity based upon the capital sum and not the instalments paid.

The plan is revised bi-annually in the light of changes in circumstances. As they proceed through life the objective may change to an emphasis on tax minimisation coupled with wealth creation through capital gain.

The general practitioner:
Aged 50, they have been in practice 20 years and are well established. They have a Self Managed Superannuation Fund and will depend upon that and private investments they have made over the past 25 years. They have set an age of 60 to retire.

Their funding for retirement has not been the result of a formal plan and therefore there is a degree of uncertainty about just how much will be available to them for a comfortable retirement. When they discover that their current arrangements produce only half the amount they will require for a comfortable retirement it provokes great concern.

“How do I fill the gap between what I have and what I need for a comfortable retirement in 10 years?”.
The challenge presented is to accrue $1 000 000 net equity over the next 10 years.

Property had not been one of the means used to create wealth but it is now the only safe investment option available to meet the challenge. They must avoid, as far as is possible, speculation.

So, late in life a plan is developed using property as the medium. The objective of the plan is to create wealth through capital gain and to minimise taxation at the same time. Rental yield is not the main focus, rather, choice of properties in locations with the best prospects of sustained growth is essential.

Where after tax positive cash flow is produced it goes into an offset account to assist in providing more equity for the next investment. The investment properties are monitored annually to determine growth as is the family home which can be used to create equity for leverage on further investment.

Given a plan endorsed by all who can make it happen and the discipline to stick to the plan, the doctor will generate the net equity they seek providing the properties they have invested in have been maintained to compete favourably with the best in the area at the time of sale or bank valuation.

The plan is developed along the most conservative lines with forecasts of capital growth limited to five per cent per annum in spite of growth in Brisbane averaging eight to ten per cent per annum over several decades.

They have invested in quality, maintained a high standard and will sell or borrow with that quality advantage.
A major plus in this plan is to seek equity uplift and to employ that equity to purchase other property which can also produce equity uplift.

The surgeon:
Aged 45 with a great professional reputation.
As their career has advanced their earnings have increased and they are now comfortably placed with little or no debt. They have a Self Managed Superannuation Fund and also have superannuation benefits from other employers.

To maintain his current lifestyle after retirement will require at least $5 000 000 net equity, excluding the family home.

As there is no formal plan the adequacy of their arrangements remains unclear however taxation is a major issue and they have been advised to invest in negatively geared property to obtain the taxation allowances.
They develop a plan to invest in high value properties in the best locations where rental yield will be around three per cent or less. Perhaps investing in a location loved by them and their family where they can live later in life with ATO and the tenants paying up to 90 per cent of the costs.

The properties selected should produce capital gain providing the locations are carefully chosen.
Their investment objective is to minimise taxation and maximise capital gain through equity uplift.

Mediwealth Australia have combined with financial advisors, lenders, solicitors and all of the expertise essential to successful planning.

We develop what we term The Plan for each of our clients to set their direction through making informed choices.

If you would like to hear more about how we can help busy medical professionals please contact us providing your name and phone or email address, and we will call to provide all information you require.

Don V. Duncan F.A.I.M.
Principal Consultant
Mediwealth Australia