CASE STUDY: Turning a Business into Retirement Income (Max & Frieda)

Max had built a successful engineering business. He had hoped his son would take over the business when he retired but his son had other career plans. So when Max turned 65 he sold the business for $750,000.


Max was referred to Saturn Portfolio by a friend who was a longstanding client. Max kept $50,000 in cash for short term spending and a planned overseas trip. He put $100,000 on term deposit with his bank but was unimpressed by the after tax returns. After meeting with his Saturn adviser he decided to invest the balance of $600,000 into a diversified portfolio.


Frieda’s parents were still going strong at the ages of 84 and 86 and Frieda felt that she was likely to live as long. Max was a regular golfer and cyclist and also had longevity in the family. It was agreed that the portfolio would have to last for at least 30 years, until Frieda’s 95th year.


Max and Frieda downsized their home in the city and bought a new, low maintenance townhouse. They planned to spend most of their time at their beach house two hours away. They had hoped to free up some equity from the sale of the family home but in fact the cost of staying in the same area and buying a modern well insulated home turned out to be about the same.


The couple were prepared to draw down capital as well as income from their portfolio to maintain their lifestyle but hoped to not consume all of their capital over their lifetimes. They knew that health and rest home care could be an expense later in their lives.


Max and Frieda worked with their adviser to establish their required income. In addition to NZ Superannuation of just over $2,000 per month they decided that $2,000 per month from their portfolio would be enough to maintain their current lifestyle. This sum would be adjusted by inflation over a thirty year period.


Their Saturn adviser designed a portfolio in line with the couple’s risk tolerance. Following a discussion around their options the couple understood that to keep pace with inflation they would still need exposure to growth assets as interest rates could be depressed for many years. They would also need stable, low risk assets ‘up front’ to provide for their living expenses. This would give them the confidence to stay invested during any market downturn.


Having liquid assets to fund their spending was a source of great comfort to Max and Frieda.


With their new portfolio diversified across asset classes, managers and geographic areas and paying them $2,000 each month directly into their personal bank account Max and Freida could now look forward to retirement with confidence.