For Accountants

Now more than ever your clients need
non-product strategic advice

Use Pathfinder to create strategic advice in minutes including cash flow modelling
and SMSF investment options.

Optimo Pathfinder is a personal financial modelling platform that allows you to create strategic investing and retirement income scenarios, in order to model the forecasted future.

Pathfinder's scenarios are full multi-year forecasts of your client’s total future asset & liability values and cash flows, as a result of our embedded optimisation processes.

Using Optimo Pathfinder you can help your clients get their personal finances organised. In addition to assisting their finances, you can now assist your clients to be more intentional and organised with their personal finances, as a precursor to investing.

In each scenario you can show your clients a possible future that can be created by allocating funds regularly to investing – both inside and outside their retirement (superannuation or SMSF) accounts.

Once you have the desired outcome that matches your client’s objectives, you can generate a Strategy Paper that includes all the strategy details and modelled outcomes.

Click here to view the full list of modelling options.

Self Managed Super Funds

Pathfinder now offers full SMSF modelling options, either for existing SMSFs or to model proposed SMSFs to your scenarios.

Click here to download a sample of a SMSF Strategy Paper. (This Strategy Paper is generated from one of our sample cases you can use in Pathfinder.)

Our Partners

To make it even easier, we have partnered up with online Factfinder platform Plannerpad (www.plannerpad.com.au).

With Plannerpad you can let your clients fill out their financial details through a secure link. The data can then easily be transferred to Pathfinder and is ready for you to create your strategies.

Your client reviews

When it comes to the review process, Pathfinder is the perfect platform to create your annual or bi-annual reviews. For each scenario created, Pathfinder lists very easy to understand yearly action items. These action items can be used to initiate the review process on an annual or bi-annual basis.

If you use Plannerpad, you can let your client update their financial details and easily run a new scenario, compare this with the initial advice you have given previously.

 

How it works

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Enter your client’s current financial situation, their goals and your strategy options to achieve these goals. Vary the elements of each strategy as many times as you like, creating multiple scenarios that you can compare. The initial information entry about your client’s current financial position is simple and looks very similar to a standard factfinder document. Once all data is entered you simply click the 'Start Solve' button and our industrial grade optimiser will start the optimisation process and calculations in real-time. Once the calculation process is finished (usually in a matter of minutes) the results are there instantly and ready for you to review and compare.
Any scenario can be converted and downloaded as an easy to read Strategy Document in MS Word format. Each Strategy Paper automatically includes: 

  • extensive Cashflow tables 
  • year by year action items
  • investment and Super/SMSF reports
  • Tax reporting
  • Property investment reporting
  • a multitude of charts and tables
  • up to 20 years of projections.

 

Easy to Use

Optimo Pathfinder is an online platform that runs on PCs and tablets and requires no connection to any bank accounts. All you need to get started is to have the Google Chrome Internet browser installed.

The friendly interface allows you to do your modelling in preparation for your meeting, or, you may wish to collaborate with your clients and have them review the scenarios with you as you create them, either in your office, or via and online meeting through screen sharing software.

Case Studies

The following case studies shows how we use Optimo Pathfinder to demonstrate real life situations and model the best options.

Getting Money Into Super

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There are many ways of building your super balance, each subject to rules and limitations on how they operate. Pathfinder can provide a prime strategy to guide you through the maze of possibilities.

Background

There are many avenues a person can follow to build up their super balance. Each has accompanying rules and associated parameters that must be followed. Let’s list some of them here:

  • Superannuation guarantee;
  • Personal super contribution, including salary sacrifice;
  • Catch-up concessional contributions;
  • Non-concessional contribution;
  • Non-concessional contribution using the bring forward rule;
  • Co-contribution;
  • Spouse contribution;
  • Super contribution splitting.

There are other rules that may assist in improving your outcome including:

  • Starting an account based pension on retirement before age 60 – taking advantage of a tax free lump sum;
  • Super balance not counted towards the age pension until age pension age.

In addition, many of the parameters that govern what can be done are indexed over time. Keeping track of and updating and remembering the details of these various schemes can be very daunting. However, Pathfinder will automatically alert you to and take advantage of any schemes that are applicable in a particular case. We illustrate this with the example below.

Assumptions

We have assumed in the analysis:

  • Pension fund returns 4.4%pa;
  • CPI 2.5%pa;
  • AWOTE 3% pa;
  • Base annual living expense $62,000 indexed at CPI.

Strategy

Peter is 52 and Julie 44. Peter works full-time currently earning $92,000 pa while Julie works part-time on a salary of $29,000 pa. Historically, both salaries have increased in line with AWOTE and this is expected to be the case in future. Julie would like to retire at age 60 while Peter plans to work until age 65. Their superannuation balances are Julie $230,000 and Peter $490,000. In this example, we don’t allow for spouse contribution splitting. Our focus here is not so much on the actual results but to illustrate how Pathfinder can assist in developing strategies.
The primary objective used in Pathfinder is to maximise total wealth at the end of the analysis period.
Pathfinder calculates Julie’s best strategy each year to be:

  • Reduce taxable income to $20,542 by making voluntary pre-tax super contributions to go with her super guarantee payments.
  • Her personal income tax is then $445, which is nullified by the maximum low income tax offset of $445. She thus pays zero personal income tax.
  • Julie’s concessional super contributions attract a tax of 15%, but because her income is below $37,000 she receives a low income superannuation tax offset to a maximum of $500.
  • Julie still pays some contribution’s tax at 15% but this is below the rate of 19% (plus Medicare levy) that she would be paying in personal tax.
  • Julie makes non-concessional contributions of at least $1,000 each year to super for which she receives a government co-contribution of $500.
  • Julie makes non-concessional contributions each year of any funds remaining.
  • Julie is also able to build up her super balance by receiving a spouse contribution from Peter of $3,000 each year.

What is Peter’s strategy:

  • Peter makes a voluntary pre-tax contribution each year that, along with his super guarantee, takes his total concessional contribution to the maximum allowable (currently $25,000).
  • Peter also makes a spouse super contribution to Julie of $3,000 for which he receives a tax rebate of $540.
  • As a long term consideration, Peter does not make any non-concessional contributions.

The age pension age for both Peter and Julie is 67. Because of their age difference, Peter reaches this age in 2031/32 and hence becomes potentially eligible for an age pension, while Julie does not reach 67 until 2042. As mentioned above, any funds held in a person’s accumulation account is not counted towards the age pension tests until that person reaches age pension age. Therefore, there is an opportunity for Peter to receive or increase his age pension by transferring super money to Julie. Pathfinder provides guidance on how he could do this.

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Figure 1 shows how Julie is able to utilise lump sum withdrawals by Peter to make a series of non-concessional super deposits

Julie makes three large non-concessional super deposits from 2028/29 to 2031/32. Of course in doing this there are rules that must be obeyed.

The strategy is this:

  • Make a contribution of a little in excess of the expected one year cap of $130,000 in 2028/29 thus activating the 3 year bring forward rule. This restricts contributions to a total of $260,000 in the next two years.
  • In the following year make a contribution of $1,000 so as to get the government co-contribution.
  • Then in 2030/31 make a contribution of $259,000 to fully utilise the bring forward cap.
  • Julie is now able to again use the 3 year bring forward rule by making a contribution of $448,000 in 2031/32. Note that the expected one year cap has increased to $150,000.
  • She keeps in reserve an unused cap amount of $2,000 so that she can make contributions of $1,000 in each of the following two years to get the government co-contribution.
  • After 2033/34 Julie’s total superannuation balance is projected to exceed the then expected general transfer balance cap of $2,300,000 so she is no longer eligible for the government co-contribution.

At age 60 and retired, Julie is able from 2033/34 onwards to make tax free lump sum withdrawals from her super account to help meet annual expenses. After turning 67 in 2042, Julie can commence an account based pension since there is no longer any purpose in keeping her funds in the accumulation phase. Note that at the end of our analysis in 2037, Julie’s projected super balance at $2.4 million is below the projected Transfer Balance Cap of $2.5 million in that year, so Julie is not restricted in the amount of funds that she can transfer to her pension at that time.

In practice, the future outcome is uncertain so Peter and Julie would be continually re-assessing their strategy and make adjustments as necessary, particularly as Peter approaches age pension age.

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Figure 2 shows the government pension payments received by Peter. Although the numerical values are not easily discernible on the figure, they are around $15,000 in 2032/33 thereafter increasing from $26,000 to $29,000.

Of course there is a trade-off in that Julie pays 15% tax on the earnings in the accumulation phase but would pay no tax on earnings in the pension phase. So how much is foregone there? If we take 2034/35 as a representative year when Peter turns 70, we find his projected age pension is $27,000. Now Julie is projected to have $2,194,000 in super at that time. Our assumptions for investment returns on a balanced fund are 5.04% pa in super mode and 5.8% pa in pension mode i.e. a difference of 0.76% pa. So Julie is forfeiting around $17,000 pa in investment income. Therefore, there is approximately a net gain of $10,000 pa for 7 years in following the strategy. We can confirm this by conducting an analysis where the strategy is optimised in the absence of the age pension.

Finally, we can observe that to implement this strategy nothing particularly special needs to be done until 4 years before Peter would commence receiving the age pension. Therefore, an assessment could be conducted at that time to determine if the strategy is worthwhile given their investment outcome over time and the government policy settings.

Conclusions

In the example, we have provided an illustration of two separate but related issues. The first is how can you utilise in the most effective manner the various schemes for getting money into super. The second issue is are there any strategies for maximising age pension outcomes once age pension age is reached. Use of Pathfinder can alert you to the various possibilities.

How Long Term Projections Can Help Clients Prioritise Their Goals

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When your clients have competing goals and not much cash to spare, the idea that “We cannot do everything at once, but we can do something at once” comes to mind. So, then the question is, how do we choose what to do at once, and what can wait until later? In this case study, we will show how comprehensive, long-term modelling can help clients prioritize their goals. 

The clients

This case study has Andrew and Melissa, who are in their thirties, and their daughter, Charlotte, who is turning two. They have two high priority goals:

  • Save for Charlotte’s high school fees before she starts high school
  • Pay off their mortgage as soon as possible

Their current situation is:

  • Andrew has a salary of $110,000/year and Melissa has a salary of $40,000/year (before tax, not including super guarantee).
  • Their annual living expenses are $70,000/year (not including mortgage repayments)
  • Their assets are:
    • A family home with a $600,000 mortgage with a minimum annual repayment of $40,000/year
    • $10,000 in cash
    • Superannuation funds with $50,000 each

The modelling and results

Using Optimo Pathfinder’s holistic modelling, we did 20-year projections to work out an initial strategy for meeting their two high priority goals. The results did not have any cash flow shortfalls, which indicates that Andrew and Melissa can afford to follow this strategy.

The assumptions used in the following strategy were:

  • Their salaries increase by an AWOTE of 3%pa
  • All expenses are indexed by CPI 2.5%pa
  • Their home mortgage has an interest rate of 5%pa
  • They keep their $10,000 cash aside for emergencies
  • Andrew and Melissa do not want to consider other investments or making voluntary super contributions
  • The analysis starts from the start of the 2017/18 financial year
  • Earnings within the Insurance bonds are taxed at 30% and will not be added to their personal tax. Since Andrew’s marginal tax rate is 37% (plus Medicare levy) and Melissa’s is 32%, they will pay less tax with the insurance bond than in a cash account.
  • Andrew and Melissa will hold the bond for more than 10 years, and therefore can withdraw their investment tax-free.
  • It is consistent with their risk profile.
  • It will provide some discipline to their savings, since they want to have the amount fully saved before their daughter starts high school.

Goal One: Saving for their daughter’s high school fees

Since Charlotte, will be starting high school in twelve years’ time, we will assumed that an insurance bond would be a suitable product because:

We also assumed that:

  • The insurance bond has an after-tax return of 4%pa.
  • The high school fees are $15,000/year in today’s dollars and indexed by CPI (2.5%) from the first year of analysis. The schedule of school fees is in Table 1.

Table 1: Charlotte's school fees 

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Pathfinder was given the following modelling instructions:

  • Withdrawals from the insurance bond must be the same as the school fees, above.
  • Deposits are allowed from the first year of analysis until the year before Charlotte starts school.
  • Within the above restrictions, Pathfinder can calculate the schedule of deposits. By default, it will keep within the rule that a deposit cannot be more than 125% of the previous year’s deposit.

Based on these inputs, Pathfinder projected the following results:

  • Initial deposit of $2,491 made in 2017/18
  • In the 11th year of the analysis (2027/28), before Charlotte starts high school:
      • A final deposit of $17,075 is made
      • The highest projected balance of $111,462 is reached
  • • In the 17th year of the analysis (2033/34), in Charlotte’s last year of school
      • The largest withdrawal of $22,268 is made
      • The account is closed

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The complete schedule of deposits is as follows:

Table 2: Schedule of deposits to the insurance bond

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This schedule gives Andrew and Melissa an idea of what is feasible within the assumptions.If they are not sure about the deposits – for example, they may think that the deposits are too skewed towards the later years – then they can consider changing their initial deposit or allowing deposits within a different year range. However, having an initial schedule will give them an anchor for exploring feasible options.




Goal two: Pay off home mortgage

Andrew and Melissa also said that they wanted to pay off their home mortgage as soon as possible.

In the modelling, we let Pathfinder work out the schedule of mortgage repayments.This means Pathfinder paid the required minimum repayment and then each year, decided whether or not they could afford to make extra repayments and if so, whether it would increase their overall wealth. (Note that to simplify the case study, we did not include an offset account, but it is possible to model this in Pathfinder).

Pathfinder projected the following results:

  • Loan repayments above the minimum required amount are made
  • Loan projected to be fully repaid in 2035/36. Projected final loan repayment is $63,745.

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In these results, extra repayments to the mortgage are only made after meeting all other expenses, including deposits to the insurance bond. It is only after they have saved the school fees that they can start making significantly larger mortgage repayments. These results give Andrew and Melissa an idea of when they could feasibly pay off their loan, and will show that if they wanted to pay it off sooner than projected, and they didn’t make other adjustments to their income or expenses, then it would impact on their goal to save for Charlotte’s school fees. 

Conclusion

Andrew and Melissa wanted to pay off their home mortgage as soon as possible and save for Charlotte’s school fees before she started high school, but the projections have shown that they cannot afford to do both at once and it is best to focus on saving for Charlotte first. By showing them this, Andrew and Melissa can consider whether they are happy with this approach or whether they would like to adjust their goals, income or expenses.

It should also be noted that since these are very long-term projections, Andrew and Melissa would need to review their situation every year, and adjust their strategy, if necessary. However, by seeing the outcome of some comprehensive, long-term cash flows projections, Andrew and Melissa can more confidently prioritise their competing goals into short-term and medium-term actions they are happy to follow.

Do Your Sums Before Downsizing (2017 data)

casestudy3.jpgA popular subject often talked about at family barbecues is; "should mum and dad downsize when they get older?" Often it's assumed that downsizing is the best option moving forward. To test and possibly challenge this we decided to run a few scenarios through our Pathfinder Financial Optimisation Platform to find out. Read our findings below;

1.1 The Clients

In this example, we look at the case of David and Alice who have recently retired and who will soonboth be eligible for the age pension. David was born on 11 April 1953 while Alice was born on 15 November 1952. They have a modest $400,000 in super. Their other assets are the family home valued at $900,000 and personal assets valued at $40,000. They have no debt. They would like to have $50,000pa (increasing at CPI) for living expenses. They are worried that their super is not sufficient to maintain their desired income. Consequently, they have contemplated selling the family home and moving to a cheaper area where they could buy a new home for $500,000. Will downsizing leave them better off?

1.2 Assumptions

We have assumed in the analysis:

  • Pension fund returns 5.7%pa;
  • House selling costs 2.5%;
  • House purchase costs 6% (including stamp duty);
  • House prices in the long term increase at 3%pa;
  • CPI 2.5%p.a.

1.3 Scenario 1: Retain Current Home

We first examine the scenario where David and Alice retain their current home. In this case, they will receive income from the government pension as well as drawing a pension from their own super. Figure 1 shows the sources of their income over a 20 year period.

David and Alice receive approximately 64% of their income from the age pension and associated benefits (see also Figure 6 below). The remainder is withdrawn from their pension account through withdrawing the minimum amount each year (plus some extra for the first few years until they become eligible for the age pension).

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Their age pensions are limited approximately equally by the income and assets tests. After 20 years, David and Alice have a combined wealth of $1,960,000 most of which is from the family home.

1.4 Scenario 2: Downsizing Family Home in 2016/17

The next scenario sees David and Alice downsizing their family home from $900,000 to $500,000 in 2016/17. Their ages enable them to deposit the excess funds generated from the house sale into super as non-concessional contributions. However, a Pathfinder® analysis shows that increasing their superannuation balance reduces their age pension because, unlike the family home, super counts towards the age pension assets test and is deemed for the income test. Figure 2 shows the results of the age pension assets and income tests for David and Alice and we can see that their pension is now limited by the assets test. For a home owning couple, the age pension reduces at a rate of $3 per fortnight for each $1,000 of assets in excess of $575,000. This taper rate was doubled from 1 January 2017, so now has a much larger impact on the pension received.

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So in 2019/20, for example, their age pension reduces from $36,337 to $9,004 and they must draw more from their pension account to make up the difference. Their wealth after 20 years is now projected at $1,581,000 or about $379,000 less than in the first scenario.

1.5 Scenario 3: Downsizing Family Home in 2027/28

In the third scenario, we examine the possibility that David and Alice defer the downsizing for ten years, say in 2027/28. Their age pension is initially unaffected until they downsize the family home, but after that time their age pension payments are severely curtailed. Their projected wealth after 20 years is now $1,714,000. This is a better outcome than in the second scenario but is still $246,000 less than if they keep their existing home.

1.6 Comparing the Scenarios

Figure 3 gives a comparison of the annual age pension received in the three scenarios. You can see that the scenario where they retain their current home, yields a higher pension and that their pension drops sharply after the sale of their house in the other two scenarios.

sums_graph3.jpgFigure 4 shows the total age pension payments over the 20 years. You can see that by keeping their original family home, their total pension entitlement is significantly higher than either of the downsizing options we analysed.

sums_graph4.jpgFigure 5 shows the total wealth over the 20 year period analysed.

sums_graph5.jpgThe first point to note is the importance of the age pension towards retirement income, depending, of course, on the particular circumstances. Figure 6 shows the composition of retirement income over the 20 years analysed for Scenario 1.

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In this example, the age pension plus estimated concession card benefits contribute about 64% to income while the account based pensions contribute about 36%. The second point is that downsizing the family home may not result in improving the overall situation as an increase in payments from a private pension may be more or less offset by a decrease in the age pension.

1.7 Pathfinder Learnings

In our Pathfinder® analysis, we find, perhaps surprisingly, that a couple could be considerably worse off by downsizing the family home. Any funds added to super by the income generated from downsizing could be dissipated by a reduction in the age pension. In addition, the costs of sale and repurchase of a family home are significant.

The age pension can provide a buffer between retirement savings and lifestyle expenses.

For persons eligible for the age pension, downsizing the family home may leave you worse off financially because of the impact of the age pension income and assets test.