Case Study: Couple Create $2.6 Million In 15 Years – The Sprint | Lighthouse Financial

Case Study: Couple Create $2.6 Million In 15 Years – The Sprint Episode 92

We often talk a lot about taking steps towards financial freedom as early as possible, but what if you only have 10 or 15 years left before retirement? Is it too late? Well, this episode is for you.


For many of our clients, they tend to pay their mortgages off at around 50 – 55. Assuming they retire at 65, that leaves them with a lot of free cash coming into the household for 10 – 15 years. It’s very tempting to spend all that money, and why not? You’re finally debt free.

While you should definitely be enjoying yourself a little more, here’s a case study on how one of our clients maximised that time to set themselves up for retirement.

Judith and Bethany at the time were both 50 when they paid off their mortgage and came to us for advice after a lot of their friends started to be in the same position and were planning big European holidays, upgrading cars and houses etc. They spoke to James about what they should be doing; they wanted to be financially free in retirement while still making some allowances to have fun in the moment.

The Sprint

We typically describe the time between paying off your mortgage and retirement as “The Sprint”. This is the final leg of the financial race, while most people like to slow down during this time, we think it’s an excellent time to prepare for the rest of your life in retirement.

Judith and Bethany had no other assets than their main home (which they had recently paid off) and a little in KiwiSaver. They were originally making $3,000 fortnightly mortgage payments which they now had available to utilise. They both earned around $120,000 per year with $100,000 in KiwiSaver each.

While they had reached a significant milestone of becoming debt free, they were still poorly prepared for retirement.

Step 1

We first recommended they make an active choice in KiwiSaver. This is a 15-20 minute conversation which can make a huge effect on your financial position come retirement. We assessed Judith and Bethany’s risk, they fit comfortably into the ‘aggressive investor’ profile with 15 years until they needed the funds. So we changed their KiwiSaver funds from their bank’s conservative fund to Milford’s aggressive fund. If they had stayed with their bank, they would have had $220,000 come retirement each. With the active choice in both provider and fund, they now had a projected $320,000 each in retirement, an easy $100,000 increase per person.

Step 2

We found Judith and Bethany an investment property to supercharge their retirement and provide a stream of income. We found them an Ellerslie property in Auckland for $800,000. We calculated a 4% rental yield on a principal and interest loan, there was an initial deficit of $30,000 at the end of the first year, with the deficit becoming smaller each year with increases in rent and the loan balance reducing. The cashflows were calculated with interest rates at 6% and includes rates, insurance, maintenance, an accountant and a property manager at 8.5%.

By 65 they would have around $870,000 in equity and a property that would be providing a positive income stream.

Step 3

The left over money from mortgage repayments and topping up the investment property were then invested into managed funds, this accumulates to around $50,000 a year. Over the 15 year timeline, the return is about $1.13 million by 65. The managed funds provided a diverse, liquid asset in retirement that they could easily draw from.

The Result

Judith and Bethany have gone from just having a debt free home to having the following by 65:

  • $800,000 in equity in their investment property
  • $640,000 in KiwiSaver
  • $1,300,000 in managed funds

The plan would be to sell the investment property to cash out at some point in retirement and put the proceeds into a managed fund, which totals them with $2.6 million of assets in retirement, providing an income of $140,000 per year for the rest of their lives.

An interesting point in this case study is that $140,000 is quite a big income in retirement, should Judith and Bethany want to decrease that yearly income, they would be able enjoy a little more of those mortgage repayments with the confidence that they are still on track to meet all their goals in retirement.

*While this plan sounds great, it has been personalised for Judith and Bethany. Please talk to a Financial Adviser before making any decisions as everyones situation is different.

For a no obligation discussion to see how we can help you on the path to wealth, please contact us.

The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.