Steve is 39, married with two young children. His wife is qualified but doesn’t work and they live in a home worth approximately $1.2m with a $400k mortgage. Steve works for a bank in their investment banking division and is a property specialist. His salary is $380k p.a. and he has earned bonuses exceeding his salary for the last 4 years. He has also participated in the company share scheme and has equity worth is $600,000 with a loan of $400,000.  He has been in the same role for 7 years and he is on track for a great career with the bank. Many before him have become extremely wealthy sticking with it. Problem is, Steve says he has conquered the role and has become stale and bored.

Steve’s wife is fully supportive even though she has some concerns. However as she says, “he is very astute financially so I will leave it to him.”

Although Steve is bored, he doesn’t want to run his own business. His view is that it’s very difficult to ‘switch off’ when you have your own business. However, being both financially astute and relatively conservative, he wants to know that he is “on track” to being totally independent by the age of 55. He doesn’t mind working beyond this age but he wants to know that he has choice.

The Dilemma

Steve clearly understands he is at a point of inflection.  On the one hand, he could keep going in his current role and in all likelihood, be very wealthy in 10 to 15 years’ time. He feels very secure in his role, knows the job inside out and with the shares and options he will get over time, he is likely to generate investment assets in the order of $5m. In fact they have made him a director of a number of their companies and have asked him to remain on these boards for at least a year should he decide to leave.

On the other hand, he wants a new challenge outside the group but not in his own business as he wants to be home almost every night to spend some time with his children. It’s a very difficult decision and he doesn’t know what to do.

The Analysis

To start with, we developed a number of cash flow scenarios including:

“Stay and go for the gold”

“Time out for 5 years, then back into it”

“A New Challenge with lower income”

“Base case – eliminate debt”

“Base case – eliminate debt then leverage”

We decided that it would make the whole change a lot easier if he reduced the risk in the short-term and backed himself to earn enough over his lifetime. His wife said she would also go back to work at some point so we took this into account.

The Outcome

Steve was keen to take the risk but he wanted to ensure that all bases were covered in the event of a catastrophe. He was very confident that he would be able to generate income and capital as long as he was able. He felt that he just couldn’t stay in his current job and ‘waste away’.

His current employer needed him and offered him a minimum of 12 months at a third of his current income just to remain on the boards and be available for advice on an ad hoc basis. He used the reduction in income to realise the shares and pay the CGT at the lower tax rate and significantly reduce the non-deductible mortgage.

He increased his life and disability insurance to ensure that there would be more than sufficient resources in the event of a catastrophe and updated his estate planning.

It took him 3 months to find his new job and he has ended up earning a similar income and is enjoying the new challenge. He has less debt but has had to almost entirely sell all investable assets other than super. However he feels very confident and believes that “if I’m challenged and happy, I’ll build the assets in the new job”.