Problem
Alfonse and Alice (both aged 65) would like to fully retire within the year.
Alfonse is currently earning $75,000 p.a. (plus SG) as a part-time consultant while Alice is earning $15,000 p.a. (plus SG) as a casual teaching assistant.
They are currently residing in an inner-city terrace that they own outright (valued at $2 million). They also have a holiday home worth $1.5 million which they would like to keep.
Their combined superannuation is $850,000. Based on their 'moderate' risk profile, you assume their superannuation can earn 5% p.a. net.
When asked about their income needs in retirement, they want to have a combined income of $65,000 p.a. In the discussion, you agree that 3% CPI p.a. should be applied.
A. If Alfonse and Alice stop work now, will their combined retirement funds last them until both reach their life expectancy? Provide a forecast to justify your answer.
B. Respecting their wishes to keep their holiday home, discuss three other trade-offs that could be considered to help improve their retirement capacity.
C. What are five main general considerations you would consider when constructing a portfolio for the clients in their retirement. Justify each consideration.