Ask an Adviser: Can Michael, 52, and Sarah, 55, afford to wind back before 60?

Editor's note: As part of this year's Livewire Retirement Series, we're launching Ask an Adviser, where we take the real-world financial questions facing Australian investors and ask a financial adviser how they would approach them.

If you'd like some general guidance on your own financial situation, email the Livewire team at [email protected] and your scenario could feature in a future edition.

Please note that names and identifying details have been changed for privacy, and some case studies may be representative of similar client situations rather than the circumstances of a single individual.

Can Michael, 52, and Sarah, 55, afford to wind back before 60?

Michael, 52, works in IT and earns around $300,000 a year. His wife, Sarah, 55, is a nurse earning approximately $100,000. Together, they've built a solid financial position: a $3 million home with just $300,000 owing on the mortgage, and $1.1 million in inherited blue-chip Australian shares that Sarah holds from her late parents.

Michael also holds $400,000 in shares in the US-listed parent company of a former employer, which he's held onto simply because he knows the business well and it's performed strongly. The SMSF is invested across a handful of ETFs, including Vanguard Diversified High Growth Index ETF (ASX: VDHG) and Betashares Nasdaq 100 ETF (ASX: NDQ), as well as some Australian equity exposure.

With two teenage children approaching their final years of school, the couple is weighing up $500,000 to $600,000 in home renovations. They both also want to start winding back their hours as they approach 60, so what should the next move actually be?

Helping answer that question is financial adviser Nathan Fradley from Fradley Advice.

The situation

• Michael, 52, IT professional, $300,000 salary
• Sarah, 55, registered nurse, $100,000 salary
• SMSF: $1.2 million (two-thirds Michael's, one-third Sarah's)
• Home: $3 million, with $300,000 remaining on the mortgage
• Sarah's inherited shares: $1.1 million in Australian blue chips, dividends reinvested
• Michael's employer shares: $400,000 (US-listed)
• Two teenage children
• Considering $500,000 – $600,000 in renovations

Untangling gains, tax and super

The first thing worth examining closely, Fradley says, is Sarah's $1.1 million share portfolio.

“Not uncommon with those blue-chip portfolios is that outside of say CBA and CSL, there can be quite a low unrealised gain, with most of the balance built from accumulated reinvestment,” he says.

“I'd weigh up the tax hit on sale with the ability to get them into super as non-concessional contributions over the years leading into retirement, using carry overs to get you as close to the transfer balance cap (TBC), then the $3 million caps, as possible.”

There's also a diversification question sitting underneath this. Is the portfolio itself concentrated in a handful of names? How does that sit alongside the rest of the couple's holdings, including the SMSF's own equity exposure through ETFs like VDHG and NDQ?

It's also worth deciding deliberately whether franked Australian income is better held outside super (where franking credits can offset personal tax) or inside it, rather than by default.

One specific opportunity: if Sarah's total super balance sits under $500,000 at 1 July, and she has available concessional cap carry-forward amounts, a deductible personal super contribution could be used to directly offset some of the capital gains realised from selling down the inherited shares.

Michael's $400,000 position in his former employer's US-listed parent is a smaller, but similar, question. Holding such a large position in a single company can create a higher level of risk.

“You can be concentrated if you really think that will pay off, but the rest of the plan needs to stack up, otherwise I'd consider those in that same question of gains and tax timing.”

With Michael holding two-thirds of the SMSF and Sarah one-third, there’s also a case for evening things out over time using strategies like spousal contribution splitting on concessional contributions so both partners are tracking toward their own TBC, rather than one spouse's balance growing disproportionately.

Renovate or recycle?

The renovation plans are substantial at $500,000-$600,000, but the couple has a lot of options. They could sell down shares to fund it outright, borrow against the home, or use debt recycling by paying down the remaining mortgage principal and then re-borrowing.

Alternatively, Fradley says there's a simpler path: clear the remaining $300,000 mortgage entirely, and redirect the cash flow that frees up into super contributions and fresh personal investments.

“Sometimes it's nice to not have debt, even if it's deductible.”

It's also worth stress-testing the renovation itself, especially given renovation budgets are notorious for blowing out.

“Compare the renovation against a new home purchase. It needs to stack up financially, but you also know the problems in your home, you don't know what you're buying into [with a new home],” Fradley says.

“A secondary benefit could be the downsizer contribution to get an extra $300,000 into superannuation, but you have to be 55 or over to be eligible - and you may not want to move house.”

Housekeeping that's easy to defer

Fradley adds that there are a few final items shouldn't be overlooked simply because they're less exciting than portfolio strategy:

• Insurance: With the couple's asset base having grown substantially in recent years, it's worth reviewing personal insurances (life, TPD, income protection). They may be closer to genuinely "self-insured" than they realise and given how sharply premiums have risen, there could be meaningful savings available by adjusting cover to reflect their actual financial position.
• Estate planning: With teenage children now old enough that guardianship provisions matter less but asset distribution matters more, it's a good time to review wills and Enduring Powers of Attorney to ensure they still reflect the family's current circumstances and wishes.

The bottom line

The good news for Michael and Sarah is they aren't short of assets. The inherited shares, the employer stock, the renovation and the mortgage are all connected decisions, not separate ones, and getting the order right could materially improve both their tax position and their cash flow as they head toward winding back their working hours later this decade.