Podcasts
Gareth Lane
Ashwin Ramdas
Updated Dec 20, 2022
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Gareth: Like the whole point of this whole business is a couple of mates sharing stories. I reckon I’ll try and find something. How’s your editing going?
Welcome back to SMSF Mates daily podcast. My name’s Gareth. Going with me is Ashwin.
Ashwin: I mean this podcast is about a bunch of mates talking about super in general and having ideas and shooting it around and seeing what comes out of our conversations.
Gareth: Let’s get into it.
Tim: All right. If someone came to you and asked how much super do you need for retirement. How would you best answer that one?
Gareth: Millions, millions and millions and millions.
Ashwin: I always start with looking at what I need in retirement on a living cost basis. The accountant in me crunches numbers and goes Jodie and I and the kids or the kids will hopefully be out of our home in retirement but Jodie and I would need probably close to 150,000 a year in retirement. How are we going to get that balance? Basically, it’s more of an income question than how much do you need? It’s how much you spend. That’s the way I generally think.
Gareth: I think that’s a really good point. It comes down to how much you actually spend and what sort of lifestyle you want.
Ashwin: The number is different for everyone. Some people can live off the age pension. I probably couldn’t.
Gareth: If you’re into camping and caravanning there’s a pretty low well, there used to be before the increase in price on caravans came along but now you need your 200,000 land cruiser. Camping can get really expensive really quickly.
Ashwin: I suppose the only thing I generally would look at is it’s easier to answer that when you or plan for it when you know what that spending habit is. The way you look at it is you’ve got a let’s say you’ve got a 40-year window to put money into super from your 20s to 65 or 60s. The earlier you identify how much you need the quicker you could get to that goal because it’s got more time in your super to make earnings for you. The problem sometimes is if I waited till I was 50 and wait until the kids are out of home I’ve only got 15 years to make that money work for me. If I do that hard yards earlier it’s less work needed in the end. That’s probably the way I look at it. I’m not sure.
Gareth: I think there’s also like a best case and worst case scenario with it. Best case scenario you go to school, you leave school when you’re 18. You do your uni. You meet your childhood sweetheart. You get married when you’re 25. You pop out a couple of kids. You live happily ever after. Have your 50th diamond wedding anniversary. Then you die and you know your life’s finished. That’s probably your best case spending scenario.
Worst case, far more realistic case is you go to uni. You start one degree. You work out it is not for you. Then have a couple of crazy marriages and you end up getting divorced. Then there’ll be a kid or two thrown in there and some child support. Then you’ll probably lose a job. You may have a Covid situation where the economy just dies or you have a global financial crisis thrown in there somewhere. Then your third cousin or your family member then doesn’t have any money so you end up bailing them out as well. Then house prices go down the toilet. Then all of a sudden you’re at 55 and what you thought when you were 20 was I need a million and you actually need two. That’s the worse case.
Ashwin: That’s quite a few cases there. I suppose the easiest way to do it is if you sort of stay on top of it to some extent. Obviously, you can’t control family changes and things of that nature but the simplistic view I always had was I need a house to live in. I need a house for the kids and my wife.
Gareth: Define house. How many bedrooms? How many floors?
Ashwin: Those things change. The key part for me was always having enough outside of super that we could afford the next house or the house we needed to move into but everything else should go into super. In my mind it’s tax friendly. It’s the vehicle that at the moment is tax-free in retirement up to your first 1.6 million dollars each which is plenty. You can’t get that anywhere else. While you’re earning it’s 15% so as long as you’re earning more than 15% tax rates which is probably more than $30,000. It makes more sense that your money being super. Now you still need money for everything else that goes through your life whether it’s divorces or things of that nature but super is the safest place generally to put your money but it means keep in mind how you invest it and what it’s doing and everything like that. That’s where I think a lot of people don’t spend any time.
I remember my first super fund. It was worked at Meyer and you filled out the form. The only question was are you risky or high risk. That was perfectly suitable then but is it suitable now or is it suitable in the future? Do I look at houses fees or anything like that? As soon as I started taking care of it I actually looked at that statement once a year and it wasn’t an unopened envelope that sits on the dining table like most people sort of do.
Gareth: I mean you look at your bank balance every day. You look at your credit card. Most people look at their credit card probably every couple of days and then most people look at their mortgage. Then you hear people never looked at their super fund and they’ve got half a million dollars sitting there. It’s just doing 2% a year. That could have been a million bucks if you paid attention 10 years ago.
Ashwin: That’s right. What’s missing all the time? I think that’s the first thing you have to look at. You’ve got to be willing to spend some time and look at your finances and super’s your next biggest investment or if not bigger than your house or what you’ve got in your mortgage.
Gareth: Some people got more money in their super fund than they’ve got in their savings.
Ashwin: But they don’t look at it.
Gareth: They don’t look at it. That’s what we’re trying to do with this website of ours is try and make people think a bit harder.
Ashwin: Make your own endeavours. Engage in your own super. You should hopefully be a self-funded retiree because we don’t know if the age bridge is still going to be there when it’s our turn. A few of us will receive inheritances over our lifetime. You probably need to be wise about how you use that money and where it should go and not just maybe put in your mortgage.
Gareth: Maybe even having the conversation with those people you may be inheriting it from so that they can set their structures up properly. I think people kind of get this surprise check when their relatives pass away. Then they go buy new Ferraris. There’s probably better ways.
Ashwin: It’s that live now mentality and just putting a little bit extra in super will let you live better when it comes to no more working but people don’t do that.
Gareth: It’s interesting because a lot of people don’t seem to have a budget or they just spend what they’ve got. I think for the first part is you have to actually work out how much you actually spend in the first instance. I’m a bit of a budget nerd. I know how much we spend. I know how much we earn and I know what’s left but I think if I was to take a poll from my primary sphere of contacts being mates, business partners, family. I would say most of them just live on what money they’ve got in the bank.
I think the first the first exercise is go and look at the last three years. How much did you make? How much have you got left? Divide that by whatever three years times 52 weeks is that’s how much you need per week. I think if you did that exercise you might be quite surprised versus what you might have quickly scribbled out on a pen and paper about a mortgage and so on.
I think the second thing you’d want to think about would be your mortgage and whether or not you would have paid your house off by the time you actually retire because that’s going to be the single largest expense. Myself, personally I like going on holidays. I’m not really interested in caravanning or camping around Australia. I want to go to Europe and eat in nice restaurants and so on. My annual budget for holidays is probably more than your standard person but that’s okay. I don’t do sport and don’t smoke and don’t do drugs and so on. I’m okay to go get drunk on nice wine in France somewhere. That’s my thing.
In my budget for super and retirement will be a house hopefully paid off but no guarantees. You’re going to probably want a new car every five or ten years. Most people do. You might want a boat. You’re going to be bored in retirement so you’re probably going to join the golf club or something. I’m not a sit at home play puzzles kind of guy. I think you have to think about what you like doing and think what you might like doing when your biggest time consumer i.e. work is taken away from you. What are you going to do? That’s got to come into it. Golf isn’t cheap. Boating isn’t cheap. Grandkids, how many grandkids you’re likely to have. Have you got a big family, Christmas presents? This starts adding up pretty quick.
Ashwin: Gareth is right. It’s fairly accounting answer to be honest. A budget, there’s no right or wrong budget but it’s the data that is probably the interesting part. People don’t know or take a holistic view generally on their spending. When people do feel out of budget they’re just reflecting maybe in the last 30 days or 60 days and three years is great. Now there are some online solutions and free tools where you can actually plug in your bank history. It’ll actually grab all your transactions. You just have to code it and it picks up the normal things like Woolworth’s, groceries and things like that. It actually spits out a fairly accurate spending history for an individual.
Then you can actually have the conversation like do I fly to France and have wine or if I don’t do that every year and I do that every three years I can put that extra money into super and have that conversation if you don’t have enough going in there. We always have to choose things. Everything is an opportunity cost. You can choose to do something now or you can choose to do it later and have the compound interest or return or the upside of it but…
Gareth: Compromise is a good word.
Ashwin: Compromise. I get that word used a lot in our household.
Gareth: Likewise. That’s life.
Ashwin: That’s exactly it but it’s just having those conversations. I think in general terms in Australia people don’t talk about finances or they don’t talk about, we don’t get taught financial literacy. We don’t get taught all these things. It’s amazing as soon as someone finds that conversation and goes actually I could do something different or there is a different approach to this they actually engage in it. That’s when you can adjust your budgets. That’s when you can adjust. Maybe your retirement isn’t trips to France. Maybe it is caravanning or whatever it is. You adjust. For me it’s too hard to quantify our budget and I’m an accountant just given the kids and all the things that change in a short window of time.
We try and stick to a percentage of whatever comes in but we will dip into our offset and our savings fairly regularly but we try and build our offset account as high as we can during the year and then in May tax time before then…
Gareth: See what’s left.
Ashwin: And Jody and I’ll just have a talk. We’ll go is there something we need to do? Is there a holiday we need to go? Get old like to go on.
Gareth: Need to go on.
Ashwin: With two young kids. That is all we need now or do we put that extra money in a super and let it go and let it do its thing. I think just talking about it is the key thing.
Gareth: I think like people try and put a number or a finite number on things whereas I’ve always kind of liked the idea of a min-max. I must have this much because if we don’t have this much then I’m going to get divorced and then I can’t eat. The bare minimum is camping. We can do bare minimum camping. Nice to have is wine in France. Rather than having an unrealistic goal and then never actually getting there and thinking that we’re going to have all this money in retirement and we’re going to go on all these great holidays. If we have a good year then we get to do that but I think it’s important about setting expectations at one end and go well this is the minimum we need in super to be able to do this but then if we can have a few wins or we get some inheritance or property market goes well. A lot of people live on the dream I think rather than the realists.
Ashwin: Yes. It’s surprising that a lot of people can adjust those expectations fairly quickly when you’re sub 40. When you’re looking at it when you’re over 40 it gets very hard because…
Gareth: You run out of time right?
Ashwin: Yes. The timeframe has to change and then the runway is so much shorter. That’s probably my biggest thing is identify your budget and your expectations pre-retirement and post retirement before you’re 40.
Tim: I heard a good saying the other day and it was something like the check comes due at 40.
Gareth: The bills paid.
Tim: You to have your shit together when you’re 40 because like you’re not able to take the same risks as you once before.
Gareth: Because your runway runs out right?
Tim: Exactly.
Gareth: A little thing called compound interest. Not everyone’s going to turn into Warren Buffett at 90 and then be wealthy when they’re 90.
Ashwin: 40 is a good area to re-evaluate those expectations of what retirement is.
Gareth: I think by 40 most people have decided if they’re having kids or not. Most people should have worked out if they’re with their life partner or not. Hopefully things go along then but I think if even if people who are 20 can put some money into super or early twenties. It’s a bit hard when you’re early twenty years. You’re doing uni and all that sort of stuff but any kind of…
Ashwin: Full time work.
Gareth: Full time work.
Ashwin: That’s a good time.
Gareth: Good accountant answer there. Full-time employment.
Ashwin: Maybe you’re not buying three cartons that way. You’re buying two.
Gareth: Buy two. It’s amazing how $50 bucks a week compounds out over 20 years.
Ashwin: If you’re having three cartons a week you’ve got bigger problems than that.
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