Podcasts
Ashwin Ramdas
Sonny Rahim
Gareth Lane
Updated Sep 11, 2023
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Sonny: Welcome back to SMSF Mate back by popular demand we’re talking about how much do you need in retirement.
Gareth: How many millions I might need to reconsider?
Ashwin: I think it’s a good time to have this part two given the market has, it’s probably corrected since we last chatted about it.
Gareth: Corrected, it’s such an official word.
Ashwin: Well, it’s the only way to sleep at night Gareth is it’s a correction whether it’s a permanent correction or not we’ll find out but I think it does make people stop and think when things go bad or go down. We’ve been seeing things or I’ve been seeing things just go up, up. When you see it come back down it’s a time to pause and reflect but then also come back to how you made the decision in that original place. If you sat down and all the things were this is five, ten, seven years away then you just often absorb it. If it isn’t and it’s not stopping, if you’re in retirement and now suddenly it’s created a different problem it’s very good time to sit down with an advisor and make a plan around it and see if you should correct or stay the course but yes, I think…
Gareth: And revisit the spreadsheet that doesn’t have any negative months in it.
Ashwin: Yes, if that helps you. That definitely does and I think for me personally I’ve got some investments since, unlisted investment. It’ll be a couple of months I’ll assume before I get the realised value of how much they’ve corrected if anything and then I can sit down and go through from there. That’s where the spreadsheet and the financials will then stop and as trustees we’ll sit down and actually have a look at it and go okay, are we still okay with all this and make a make a decision if we need a correct path but also it’s also a time to look for opportunities. It could be a time to put more in depending on your circumstances and where you are it will be something we would look at too because it still doesn’t deviate for me personally making sure I try and maximize the tax contribution by putting more money into super. Then I’m still faced with the quandary of as trustees what do we do with this cash.
Gareth: Because you don’t have to invest it. You can just leave it as cash.
Ashwin: We’ll wait. We’ll leave it in cash and we’ll wait to buy back in at a certain point because we don’t think this is the bottom or no, we think this is the bottom. Let’s go back in and buy certain asset classes for the next five, ten year period. I think everyone’s going to make those calls individually but it’s a good time to stock and do that because everyone’s been told concepts of you buy back in at different points in the market. Well, this is when you can sit down and do that. You sit down and have that discussion as trustees or members of the fund and make a plan around it because different people might be at different stages as well.
Sonny: Ashwin, do you have a personal approach in terms of how you invest in down markets or only because you talked about knowing when the bottom was?
Ashwin: It’s probably not a formal strategy as such but it would be I’ve got a spreadsheet because I’m an accountant.
Gareth: Of course you do.
Ashwin: Once I get those updated values of those other investments I can see holistically how much things I’ve got in what I view as liquid, illiquid and the types of investments are they Australian shares, are they global, are they special technology stuff, are they different markets? All those sort of things then I’ve got a little table and then I go where do I see weighting but and this is where I say it’s not formal, all of a sudden you might be presented with an investment opportunity or something completely different but if that investment opportunity in this venture stacks up financially or you could see an upside well it changes because you can see a better upside than following the norm. Everyone’s got opportunities in front of them and there’s tons of things to invest in and it’s just been pragmatic enough to go well what could we do. As long as you’re not giving up on the short term things if you’re in pension phase ultimately it’s a long term game super. You’ve got to try and go okay yes, I might be a bit down now that the spreadsheet’s not looking great but I can go back.
Gareth: You can fiddle some numbers in a spreadsheet. You can maybe change the colors. It makes you feel better.
Ashwin: Change your colors and make you feel better but again it’s not going to, it needs to still be cash at the end when I retire.
Gareth: There’s a reality to it right?
Ashwin: I think that’s where it stacks up. Maybe I’ve said it previously and I’m at a phase where I’m sub 40. I might not look good on camera but I’m sub 40 and the opportunities to take a higher level of risk at this point in my time is now because I’ve got another 25 to 30 years of working that I can recoup any losses that happen. My risk profile now is probably different than what it would be, well it would be different to what I would be in 10, 15 years from now. Everyone’s got to weigh their own personal situation how they feel about things. If you’re a part of a super fund with other people, other people need to also say what they’re comfortable with as well. Ultimately everyone sit down and make that plan but it also will come back to how much you need in retirement. If you’ve had some big wins maybe cashing it out now and reinvesting in a different strategy might make sense but you need to sit down as a group to see if that’s actually had a big win in the last two years to do that.
Sonny: Reflecting back on how much you need in retirement do you base your investment strategy at this point in time on that or is it about as getting as much as you think you can in a risk-adjusted way?
Ashwin: When I’m sitting down with the members in the fund it comes back to what I think retirement spending will be. When it’s opportunities in that time and moment I’m looking at the opportunity and then I frame it around that. Still when there’s other people involved and my fund does involve other people we sit down and make a plan around that but yes because in my case I do want to make sure there’s enough retirement income because ultimately that’s what the fund’s for. It’s the vehicle for retirement but you do have chances when you can see things in front of you and go hey, I might put money in there. There’s different risk mentalities out there for people.
Sonny: How about yourself Gareth?
Gareth: What’s the question?
Sonny: I guess the question’s coming back to is there any update on how much you think you need for retirement or has your strategy changed in current and recent markets?
Gareth: I’m 35. I’ve been used to double income, no kids, with nice wine collections and whatnot spending habits. We now have a kid so we no longer double income, no kids. We don’t know what the acronym is for…
Ashwin: One income, one kid.
Gareth: I think for us we don’t want to sacrifice the time that we are alive to have a whole bucket of money in super that we can’t spend. Unfortunately we’ve got quite a lot of friends of parents or parents of our friends who haven’t made it past 65 or 70. One guy in particular was two weeks away from retiring at 62, never been on holiday. He’s got 2 million bucks in super and then got brain cancer.
Tim: You don’t want to be the wealthiest man in the cemeteries.
Gareth: No, exactly right? I think the realism is we want to do things while we can without getting to the point where we hit 65 and then we don’t have any money to do anything. It’s a pretty interesting way. I completely mirror Ashwin’s comment about get the maximum tax effective thing that you can do. Both Casey and I put $25,000 to the cent almost every year into our super fund because we can and we don’t have to sacrifice anything to do that. We’re able to build our balance up quicker even if it means not taking any risks in our super fund. We have been in the position that we can put cash in now. The reliance on the fund going up so much isn’t as important as our ability to put money into it. Then from an investment point of view I’ve always loved for some reason I read long time ago about the rule of thirds. It was like 33, 33, 33. It was put a third in high risk, put a third in no risk and then the third in the middle sort of nice little safe chips. I’ve kind of followed that concept. It’s a bit like the 80-20 rule. The 80-20 rule seems to apply to everything. The thirds concept for me seems to apply to everything in business as well.
We kind of follow that. We’ve got some safe bets, some medium safe and some punts if you want to call them punts. I don’t know. I think the other big thing is being in a position to have paid off your house. If you throw a mortgage in when you’re in retirement then that takes a pretty big slice out of your, you need an income to pay for a mortgage. The options are live cheaper, move or get it paid off quicker. There’s a lot of kind of…
Ashwin: I think that’s where I might differ from you. I look at home owned debt as much as it scares me the amount of the debt is, the interest rate is still low even with the recent…
Gareth: It’s rising. What’s the date of this podcast?
Ashwin: It’s gone up fair increase from the RBA to date and maybe more to come but I still look at it going when I’ve got let’s say an extra 20 grand in the offset account. We’ve bought our dream house. All accounts is we’re not upgrading anything else but…
Gareth: Is that your wife’s words or your words?
Ashwin: That’s actually her words. All good there.
Gareth: Get that in writing.
Ashwin: But for me then comes back to you’ve got money in your offset account and if we’ve got enough money in office account for a rainy day then we’re going all we’re really doing is saving maybe three and a half, four percent interest or whatever it ends up being each year versus if you go into my super fund and save me a percentage of my tax and then invest for my retirement because in my head the house will be paid off in 30 years naturally. We don’t need to go over and go above because what I’m really going to miss out is the opportunity for that money in my super fund to grow in a lower tax environment and prepare me for retirement. You are right. You do sacrifice not having access to the money so maybe dream holidays and all the rest of those things can’t happen because we put money into retirement but if something did happen to me and passed away the money’s going to go to my wife. It’ll all fund a retirement. It’s not disappearing into no man’s land. It just means I didn’t get to enjoy it but I’m still making sure I try and do things I enjoy throughout my life.
Sonny: You’re not missing out much actually.
Ashwin: No. When you’ve got two kids five and three there isn’t a lot of fun things…
Gareth: Left to do.
Ashwin: Your weekends are spent around sporting fields and tantrums and snacks and sleep times and everything else.
Tim: Sorry to interrupt but…
Sonny: You should be Tim, you should be sorry.
Tim: The topping up your super contributions because that one really resonated with me last time we did this. Like if you talk it out. Say, if you’re on a hundred grand salary your super, it’s 10% right?
Ashwin: Oh, I think it’s ten and a half as of one July this year but you’re right. Let’s say a hundred grand salary, ten thousand five hundred’s going to super. You’ve got to put up to 27,500 but that’s obviously got to come from your own personal funds. Most people are paying off their mortgage. Now if you’re really tight and you don’t have a safety net I would not be, it doesn’t make sense to put money into super as much as it’s tax credit but you need to have a safety net for your personal life so make sure all of those things are done first but you can put money in a super. If you don’t use it one year you can catch it up as long as your balance is low and you’re at that point. I think most people are maybe not aware of the salary sacrifice in a super and that’s something they should explore but that also means salary sacrifice so it’s coming out of your pay. Make sure you still got enough in your lifestyle.
Tim: If you’re in a position to do it, to top up to that full amount on that additional amount that you’re putting in there’s obviously a tax benefit. You could look at that tax benefit as kind of like an investment return.
Ashwin: Well, it’s money. It is. That’s the easiest way. I sort of explained to most people let’s say your tax rate’s 39%, the tax and super’s 15% you just got that difference. You got the difference back as a return.
Gareth: Which is the same as like three years of the thing going up.
Sonny: That’s a bloody good return.
Ashwin: You’re leaving that on the table every year. Now because the HO changed rules, it says you can catch that up in future years. You haven’t really given it up as long as you can still meet those requirements but you’re mindful that it should be used. Some people will let it lapse and not use it. Then when it gets to retirement and I don’t know Gareth’s personal situation but you might have a great time through your life and then when you get to and you might get to your 50s and then you start thinking oh your retirement’s around the corner and then you realize, I don’t have enough in super. Now you’re trying to catch up with this little window of time versus if you had that conversation at 40 or 36 bang, you’ve got more time to actually make the adjustment to your personal life to have that ideal retirement. That’s the way I’ve pragmatically looked at it for me and my wife. We sit down and talk about that side of it but the biggest thing for us was getting the house.
Sonny: It’s your longer term strategy that you might make every dollar into superannuation as efficient as possible and have potentially an earning rate that exceeds your cost of debt for your home and then do a lump sum repayment at the back end.
Ashwin: That’s a valid strategy. You could do that.
Sonny: Sorry, I wasn’t suggesting that. I was wondering if that is what you’re planning to do.
Ashwin: No, the plan is because of my age it will be paid off at retirement age anyway. There’s no need for us to change. We bought what I would hope is our forever home and we’re not changing it. This will be the last home we have. As long as we manage to pay that off we’re okay. That’s fundamentally the decision we have. When people decide to upgrade their houses at 50 or 45 and they take on more debt well then that home runs over 25 years. That’s into your retirement. Then you probably need to draw your super out so you’d hope your super fund’s outperforming that debt otherwise it doesn’t make much sense financially to do what you’re doing but me and my wife also talk we don’t have dreams of buying a holiday home. We don’t want to do any of those sort of things. We’re not trying to save up for those things. Happy to pay for the ridiculous Airbnb rates to go down and spend time but that’s okay. That a cheaper cost than on to a holiday home in the southwest.
Gareth: I’ve done the spreadsheet on that as well. It don’t make sense in my head either.
Ashwin: Well, if someone sets up a hotel that I can buy and I’ll get a room during the peak season of school holidays and I’ll get a rental return that adds up then maybe investment wise it stacks up but you got the spreadsheet.
Gareth: Doesn’t work. You start throwing all the fees and then it really stuck in my head that someone said they owned a house down there and then every time that they went down there on holiday they were just doing maintenance and gardening to look whereas the wonderful thing about going staying in someone else’s house is you really don’t give a shit. It sounds horrible. I am someone who does look after things but I always complain about the wine glasses are rubbish and there’s only three knives. I understand why people do it because you put $100 glasses in there. They’ll be smashed to smithereens. All the nice globe knives go in the dishwasher.
Ashwin: Serious question are bringing your own wine glasses?
Gareth: No but there’s nothing worse than when you go to an Airbnb and I went to one recently. It was a two bedroom with a wood fire in Margaret River. That’s what you want in winter, no wood. There’s a log fire in the thing. No wood. Message the owner oh, we’re not doing that at the moment. The reason is they don’t…
Ashwin: You meant the fireplace.
Gareth: The fireplace, sorry but the next part’s coming.
Sonny: Was the reason because they didn’t have enough in super?
Gareth: I don’t know. Maybe. They were just being stingy. It really pisses me off. If I was the owner of that one, I’ve now just got a message from on a Saturday morning from a grump…
Ashwin: A tenant with no wood.
Gareth: Right and then the wine glass thing. You open the cupboard and there’s three champagne glasses. There’s four of us staying there. I want to have a nice bottle of champagne three champagne glasses. It’s the little tiny little things that matter but if I was on the receiving end and I was the owner. On Saturday morning when I’m laying in bed I’ve now got a tech summer pissed off Airbnb person saying there’s no wood and only three wine glasses I mean that’s not worth the spreadsheet. You don’t put that in the spreadsheet.
Tim: I’d take my rocket coffee machine down. It’s a pain but…
Sonny: Impressed that you’ve got a rocket.
Gareth: I think relating that back to how much do you need in retirement depends if you want a holiday home. Do you need two houses?
Ashwin: Ultimately that’s the thing like I think we talked about it the last time we did this podcast it comes back to your spending. Ultimately that’s going to dictate if you’ve got enough for retirement. Some people…
Gareth: And debt right?
Ashwin: In that position. Definitely in that position at retirement, the one thing you’d hope most Australians aim for is to come into retirement with no debt on their house or credit cards and you’ve got assets now funding your retirement. You’ve got the age pension as a safety net. That’s what it should be. Some people can survive off the age pension. Good on them if they can. I have a feeling it won’t be around when I reach retirement age.
Gareth: Where’s the money coming from?
Ashwin: Our kid’s working so he’s got to keep producing more babies that work and pay off our retirements but who knows? That’s ultimately why the biggest things people need to focus on is how do you fund retirement and try not to rely on inheritances that may come in the future. If you do get like fortunate enough to inherit money from your loved ones throughout life then invest in them wisely so they do…
Gareth: Invest in the family members?
Ashwin: I think invest in both parts but ultimately you need to be wary that those opportunities have come of other people’s sacrifices and to make sure you use it wisely for your own self.
Sonny: In most cases that intergenerational wealth transfer is going to benefit the generation after so your kids in your case. By the time that you see your time through you would have had to have worked, you would have had to have had a strategy, put everything in place not to rely on something to happen. If it does it’s the next gen’s benefit.
Ashwin: I think you’re assuming Sonny that people are switched on enough that they’re taking active views in their super at our age or my age if they’re not some of them are probably going to rely on those inheritances to get them out of the house that they’ve over extended for or they’ve lived through going on holidays and everything else through their lived it up but then they rely on that inheritance to save them at the end. Then there will be an ultimate benefit to their kids but it might not be, I view that as the biggest issue is if you’re in the position where it does it’s just a bonus that comes through that will benefit your kids that’s great because it’s going to be enough of a struggle given what house prices are now for them to get into the market that you need that just to get them through but if you’re someone that relied on that for your own retirement well then you got one house to maybe split around three kids to get them into a house. You may have squandered what your parents were trying to do for the grandkids. I think the best way for any of these things to happen is you sit down and have conversations as a family and then maybe the message gets through to you at a younger age that hey, mum and dad want that inheritance for the grandkids to make sure they get a house. You’ve already got one you pay that off and make sure you provide for your grandkids because I think that’s a valid point from my view anyway.
Gareth: Are they teaching financial literacy at school yet?
Ashwin: I actually I’ve got a five year old. I haven’t looked at his curriculum yet but I’m assuming there are basic things maybe taught in terms of accounting and arithmetic but I don’t know if there’s a formal financial literacy course yet for kids. I know Barefoot Investor and people like that have been pushing for something like that to be more formalized whether that happens or not we’ll see.
Sonny: Just to look back for a second, the reason I raised the earlier comment was because when we talk about how much you need in retirement some people don’t only just view that as how much will I personally need in retirement to fund my expenses and my requirements and objectives but is there an amount of money that you have a golden objective to leave behind as a legacy to help future generations and pay it forward to a degree. I guess what I’m trying to say is encourage people to say if you’re of the ilk of wanting to do that then that needs to be factored into how much do you need in retirement. It’s not just your number but it’s a number that you want to potentially help kids with. As you say Ashwin into properties and houses because if you take the number that you think you need based on projected expenditure or wants and then all of a sudden you think about wanting to help kids or grandkids or whatever it might be and take that number out of the pot you haven’t left yourself with…
Gareth: That’s a big dent.
Ashwin: I think that’s where you have a lot of these bigger conversations with your partner about bigger choices. We’ve made the active choice. That was the reason for the move of the house was school zones. For us if we could afford to let’s move into a school zone for our younger son’s got a disability. We wanted to find a school zone that accommodated that and we did but I knew personally if I was forking out what it cost to send a kid to a private school I would inherently put pressure on my kids. I’ve known of clients of hours anyway where the kids have gone through to uni and everything else and they want to do 1a trade. It was clear as day at year 10 that…
Gareth: 800k in school fees.
Ashwin: And this kid knew what his passion was and couldn’t do it because well, he could have done it but he felt obligated to go through finish year 12, go to uni, do a degree and then become a trade. I would prefer to have that cash that we would spend on a private education to get my kid to not be an apprentice. After his three years he could start his own business.
Gareth: Here’s another spreadsheet test for you. I did the school fee spreadsheet as well and mapped out the cost of, this is me nerding out a bit but I did year one to year 12 at a typical private school in Perth at a market fund rate yeah and that kid didn’t need to work. If you go like what it costs from five year old, 25, 20 grand a year up to uni, 21, whatever. You put the same money in the same year in a fund, by the time they get to, I don’t know what the number was on the top of my head. By the time they get to 21 they had something like one and a half million dollars. I’ll have to work it out. I’ll go find my spreadsheet again but the idea was if you’re in a position to be able to pay for school fees then there is a scenario where they’d actually don’t need to work.
Ashwin: I’m kind of glad I didn’t do the spreadsheet because I would have been more anxious about it but…
Sonny: I don’t think I mean if let’s just say the numbers are one and a half at the end if that’s the number and if that’s enough then I don’t think your math is going to be that far off but that’s a better broader philosophical question around education and like.
Ashwin: No and that’s a valid point.
Gareth: But it’s not they didn’t go to school. They went to the private school.
Ashwin: That’s where I’ve got mates who’ve got kids at private school and because I’m looking at from a financial point of view because that’s how my mind works. Have you seen the things my kid does at school? I went okay that’s pretty cool but if your kid’s inclined that way and it excels that person and it has for this particular, our family I’m talking about obviously won’t name them but you can see the extra work that the teachers in the school are putting into this kid at this age and what he can do at the age of eight but I’m like I don’t know if my kids are going to be like that. I don’t want to create the pressure so I’ve made that decision. I said look, I might be doing detriment to the education in the future but I went to a public school. There was opportunities to do things outside of it but it was my parents and my brother and people around me saying hey, you can make it. It’s harder but there’s something to say about that as well personally but yes, there are some great institutions and educators in the private education that give good opportunities for people but financially it was a big cost that I could see I could reinvest in the kids in another way. That’s ultimately what I made a decision on.
Tim: I think adversity is valuable right? A bit of pain. Experience.
Gareth: Just to clarify my comments I have used the very handy calculator that’s on SMSF’s mate’s website. I very quickly hypothetically did 15 years of two grand a month. What’s that? 25 grand a year without any inflation.
Tim: Is that what it costs?
Ashwin: It doesn’t cost so much in the early years.
Gareth: It’s like 15.
Ashwin: Really?
Sonny: Depending on the school.
Gareth: You look at the typical, it goes up from there.
Sonny: Just because they’ve got a meditation room.
Ashwin: They meditate the money that’s in the air right?
Gareth: Well there’s another school north of the city that’s up at 50. I’m going to put 8%. 960,000. You start you start your life at 21 with a million dollars. That’s an interesting…
Ashwin: Oh I feel there’s no big dip at the end of it but yes, I think it’s valid. That made me more comfortable with the decision I made that we will do it that way and we’ll see how our kids go but yes.
Gareth: But like if you really think the idea of going, the philosophical idea of going to private school is get a better job. That’s the theory. For some people it is.
Ashwin: There is something to be said. There is definitely a network. The benefits of going to a private school but I think and it’s a bias that I have personally because I went to a public school that as long as it’s a public school that you feel safe in the environment there are opportunities for kids that show an interest in academic to pursue things. It is harder in certain areas but that’s my personal view on it but then if you do go down a trade pathway it’s not, I would imagine not as shame, not the right word but it wouldn’t be, it’s an easy pathway there might be better place to get someone into a cheapy role then you’re going to one of the elite schools in the state you say hey I want to be a cheapy. We don’t have facilities for trades.
Gareth: We’ll teach you how to be a performer.
Ashwin: You want to be a finance analyst. You want to be a lawyer. You want to learn how to run a business we’ve got stuff for that but for a trade we’re not built around that world.
Gareth: That’s an interesting point as well like the school is set up for certain careers.
Ashwin: When I look at all the technology around the world and things that can be replaced I’m pretty sure my accounting nuance could be replaced by a computer but I’m pretty sure I’m still going to pay for a trader to come and change the lights in my house. I think that they might be safe.
Gareth: What suburb do you live in again?
Sonny: Thanks for tuning in to SMSF Mate. Hope you enjoyed the session. Please subscribe to our podcast and check out our website www.smsfmate.com.au.
Gareth: I don’t think we win any awards for a concise business segment. It writes well but it’s pretty hard to say in the podcast.
Thank you for joining us once again. If you’re interested in our waffle about self-managed super funds feel free to join us on smsfmate.com.au or search SMSF Mate in Spotify.
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