When it comes to retirement…you should get excited!
15 July 2017
Retirement is considered, by most of us, as something that just happens at the end of our working life…but it doesn’t have to be.
It can be a time of living by the seaside, travelling the world, or ticking items off your bucket list, it’s all up to you. A little preparation and planning now can make all the difference.
Claire MacKay, Director and Head of Advice at Quantum Financial, talks with Mike Lynch and co-host Kylie Kwong about how retirement can be the most exciting and fulfilling time in your life.
Host: Mike Lynch
Guest Co-host: Kylie Kwong
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Mike Lynch: Welcome to episode 10 of the Acuity Magazine Podcast. When it comes to retirement, you should get excited. This episode is sponsored by Accountancy Insurance, providers of audit shield, the preeminent tax, audit, insurance solution for accountants for Australia and New Zealand. I’m your host Mike Lynch.
Kylie Kwong: I’m your cohost Kylie Kwong filling in for Leigh Sujanto. On today’s episode, retirement is considered by most of us as something [00:00:30] that just happens at the end of our working life but it doesn’t have to be. It can be a time of living by the sea or ticking off your bucket list. It’s all up to you. A little preparation and a planning now can make all the difference. Claire MacKay is the director and head of advice at Quantum Financial and she joins us in the studio.
Mike Lynch: Claire, welcome to the Acuity Podcast.
Claire MacKay: Thank you very much. Very exciting.
Mike Lynch: We don’t talk about retirement. Some of us really don’t want to think about it. What are some of the important considerations [00:01:00] we need to make? What’s the, I guess the ideal retirement plan that we should have in place?
Claire MacKay: Well, putting your head in the sand and hoping that it’ll just take care of itself is not the ideal. In fact, that’s not a plan at all. I’d like to get people excited about what retirement means to them because if you can start visualising what your retirement looks like, you become more motivated to put a plan in place to make that more realistic. I’m a big believer it’s never too late to start. It’s never too early but if you can have a [00:01:30] feeling and an idea of what it looks like and get excited about it, and you can start making possibly some hard decisions now to make it a really wonderful dream retirement that you actually want.
Mike Lynch: What are some of those ideal plans that we should be thinking about now? What are some of the fundamental pieces that we need to have in place in order to have that ideal retirement?
Claire MacKay: Well, the big thing is having the money and it’s always how much is enough and how long will it last? Having an idea of what your dream retirement looks like means that [00:02:00] you can start putting some numbers around that, how much it actually costs, because the biggest challenge in approaching retirement and actually starting retirement is that you don’t have that regular paycheck coming in anymore and that is a huge mental shift and knowing that you’ve done all the hard yards to get the pile of gold ready to be able to sustain you through retirement. Making those hard decisions to put money away in the various tax incentivized schemes to encourage you to save retirement is really important. In Australia, [00:02:30] we have [inaudible 00:02:31], we have Kiwisavers in New Zealand. There’s pincher funds all around the world that are encouraging you to save for your future. What I do know is that for most people, relying on the government to support your dream retirement, is not the dream you want.
Kylie Kwong: So is there a magic number or certain figure, how much money do you think we need to retire these days?
Claire MacKay: Well, it’s always how much is enough? And that’s a great question Kylie because that is dependent on every individual. I’ve got clients who [00:03:00] have a certain number, and I have clients who have a completely different number. And it’s about what is your right number. So we use as a rule of thumb in Australia, a comfortable couple in retirement, in a major capital city, is 60,000 dollars. Now that’s not actually a lot. That doesn’t mean you can go travelling overseas every year. That doesn’t mean you can get a new car every couple years. You break it down, and there’s a lot that goes on, basic living expenses. So if you want to have those more regular overseas travels or [00:03:30] more luxuries in your retirement, then you need to start budgeting what that number is. Once you know what the annual amount is, then you can do some calculations to work out what a lump some will support that.
Mike Lynch: Do we have an idea of what, ideally, we should have in the bank to have a comfortable retirement?
Claire MacKay: The big one is no debt. So if you’ve got a home mortgage, you really want to make sure that that’s paid off before you retire because with the absence of a regular income, having [00:04:00] debt and paying off debt in retirement is eating into your retirement savings. So that’s an absolute essential, to be sure that you don’t have any debt, and I’m talking about the home mortgage but of course credit cards, personal lines, all those other horrible, really expensive debts. We don’t want any of those either. But then it comes down to what is your lifestyle? I don’t think that it’s about well how much does it cost you to live and have the lifestyle that you want? And I’d love to have a magic number that everyone can use, but that depends [00:04:30] on where you live and what your lifestyle is. So, in Australia it’s been [banded 00:04:35] around a million dollars. But a million dollars for some people would be more than enough and for others, it would be nearly covering costs. It really depends on your circumstances and who you and what you want.
Mike Lynch: You talked a little bit earlier about we’re all on these retirement plans … We tend to put money into these plans, they come out of our pay. Is that something we should solely depend on or do we kind [00:05:00] of really need to step up and be more [aggressive 00:05:03] with our retirement?
Claire MacKay: Well the big thing is, and in Australia we have nine and a half percent of our salary, every pay cycle, they take and put into our retirement savings for us. So that’s mandatory and you don’t have to think about it. And if all you do is rely on that, then you probably won’t have enough. Yeah, I can see your face Kyle, it’s not a good look. And the thing is, it was planned originally to get up to 12% and we haven’t got there because of the political situation. [00:05:30] But if you’re purely relying on that, you will definitely be relying on the age pension, and it depends on what your lifestyle is. So, there’s other incentives to encourage you to put more of your money into your retirement savings, which helps encourage people to do so. The other concern we have is obviously the system keeps changing. So if you have a lack of confidence in the system, you’re less likely to engage in it. But with almost ten percent of your salary going off into these retirement funds, [00:06:00] you really should know that’s a big chunk of your annual salary, and you really should know what it’s doing. And therefore once you get excited about what it can fund, you start becoming more involved and wanting to increase it through your additional savings as well.
Kylie Kwong: What are simple ways? Is it hard, or is it as simple as logging in, having a look at your account, seeing where it goes, and what you can do about it?
Claire MacKay: Those are great examples Kylie. I think that for a lot of people, they just don’t know. And if they’ve changed employers, they’ve forgotten how many accounts [00:06:30] they have. So knowing where your money is, maybe considering consolidating them into one fund so you’re not paying duplicated fees. And these days, the smart and savvy funds are saying, “If you keep going the way you’re going, this is what it’s gonna look like when you’re 65.” Now the other thing is we know that we’re all living longer. The retirement age for the age pension is going up to … It’s currently 65, it’s going up to 67. But we know that more and more Australians are gonna be hitting age 100. And your retirement [00:07:00] savings have to last a long time. So the other thing is, well how long do you want to keep working? How long can you keep working, depending on your own occupation? But also, is this expectation of, maybe working a little bit longer to ensure that you have the more comfortable lifestyle in retirement.
Mike Lynch: And we’ve seen a lot of that haven’t we? That people are forced in the situation that they have to work well past what is considered the retirement age. Or was considered the retirement age.
Claire MacKay: Yeah Michael. And I think that that’s the sad thing. When people are forced to do something that they either [00:07:30] don’t enjoy, or physically can no longer do. Having the confidence and having the choices. So making decisions about putting money into your retirement funds and paying off your debt early. They are giving you choices later in life. There’s nothing worse than feeling like you’re dragging yourself to a job because you have to because you know you can’t afford not to.
Mike Lynch: We talked about the financial pressures that are currently going on in the changes in policy … Is the system becoming more of [00:08:00] a … To retire comfortably, a division between the haves and have nots?
Claire MacKay: Well it’s certainly a division between those who have their own home and those who don’t. So again, I mentioned about debt, the other thing is about home ownership. That gives you security. And owning your place, means that less of your savings are going into funding your accommodation costs. So the haves and have nots, across our society, there is getting a bigger divide with the property discussion that we’re having here [00:08:30] in Australia, but also, the idea that the majority of Australians still rely on some form of government support in retirement. And that’s not gonna change any time soon. But the more you can put aside, the more comfortable, the more confidence you have in relation to where you live, your healthcare options, the quality of lifestyle you have in retirement. And I think that the policy discussions are certainly addressing that. I know there’s been a lot of inquiries and to particularly more vulnerable people in our society. For example, [00:09:00] older women who on average earn lesser overall and therefore have less savings in retirement. And so particularly for more vulnerable people in our society, there does need to be a discussion in the policy [inaudible 00:09:16] around what we as a society are doing about that.
Kylie Kwong: So for younger women, is there anything that we can do right now to avoid that?
Claire MacKay: Well, my father always said to me, “A man is not a plan,” Kylie. So, absolutely. I think it is beholden [00:09:30] where your successful, savvy, career women who are good at their jobs, and taking that same enthusiasm and fabulousness, into your financial affairs. So, knowing exactly where your money is. Making a decision about maybe putting a little bit more into your retirement savings and that might give you some tax advantages. But also just knowing where your money is and being aware of not just yourself today, but Kylie in 15 years time, and what Kylie in 15 years [00:10:00] time wants to be doing with her life. And that takes a little bit of planning and a little bit of organisation. So there are lots of little things you can do now that put you in a really great financial position in the future.
Mike Lynch: So what are some of the practical things that we can do now? Practical tips. That if we know we’re gonna fall short of our goals. What can we start doing now?
Claire MacKay: Well I hate to say it, but the dreaded word that everyone … It’s a bit like diets or exercise, in that world. It’s budgeting. You can’t get away from it. Because if you’re trying [00:10:30] to work out how much it’s gonna cost you to live in retirement, you need to know how much it costs you now. So understanding how you spend your money now, means you can identify where you can make some savings, or you can identify where you can put a little bit more into your retirement. For younger women obviously, there’s also that recognition that you might be out of the workforce for a period because you’re raising a family. And so the decisions there with you and your partner around how you as a family arrange your financial affairs as well. So again, those little things we all [00:11:00] joke about … The avocado on toast or the coffee in the afternoon. But those little things, it’s a mental shift, and it represents how you look at your money. And if you do the mathematics on how many hours you work a day and what’s your hourly rate, it’s quite depressing really. But if you’re smart about it, you’ll actually see that as an opportunity and it sets you up for the future. So those little things that we all sort of scoff about, are absolutely essential.
Kylie Kwong: [inaudible 00:11:26] inheritance, should we be having conversations with our parents about getting [00:11:30] it earlier? Does it make a different?
Claire MacKay: Well, a lot of my clients here are a little bit older, and the big things that they’re worried about are, “Do we have enough, will it last, what about our kids?” So, your parents are worried about you already. What I say to my clients in that demographic is, “If you look after your kids to the detriment of yourself, they will end up having to look after you.” So, having a discussion with your family, if they are in a fortunate position to be able to give you some sort of financial assistance is great. [00:12:00] But not everyone has that and I think that that has to be a really delicate conversation you have to have in your family. Particularly, if you’re not the only child. There has to be an element of equity. The other thing is that … When I say that my clients who are older, if they are gonna provide financial assistance to their children, there has to be some controls around that. So it’s a matching dollar for dollar. There’s incentivizing the kids to actually put a bit of effort in.
The other idea is to make sure that it’s structured properly. So it may not be a gift, but it may be structured [00:12:30] more as a loan. So that again, there is that element that you’re not taking advantage of your family. You pay the bank, you pay your mobile phone bills. Your parents should not be put at the bottom of that list because they’re in the position to be able to assist you financially. And the other thing is, if you’re in a relationship and your parents have assisted you, that provides an element of protection over the family if that relationship doesn’t survive. And again that’s being open about what happens these days in relationships and in money and I think the other overlay [00:13:00] is that … Be aware of the personalities involved. I think that the old saying “Family, friends, and money sometimes don’t mix,” and being aware that just because you think that your family might have the resources and you think that they might be open to it, they may decide not to and that should be okay. Your relationship as a family is far more important than any financial overlay. That’s [inaudible 00:13:24]
Mike Lynch: We talked a bit about having the family home as security for the future and [00:13:30] we’ve seen specifically in Sydney and other countries, housing prices going well out of the reach. I doubt mt daughter will be able to buy a house in the future. I hope she does. Is it realistic that not only should we be planning for retirement through salary sacrifice or whatever those plans that we put together … Should we also be thinking about how we generate income while we’re in retirement?
Claire MacKay: Well, absolutely. I mean that’s the whole point of [00:14:00] the pot of gold and I use the term pot of gold loosely because it’s not like we’ve got gold sitting under the bed.
Mike Lynch: We wish.
Claire MacKay: It is about having financial assets or assets of any that are giving you the regular income and that are growing in value to support you because a lot of people are looking at 30 years plus in retirement. That’s a long time. That’s as long as your working career. So, constructing a portfolio to support that and accommodation of shares, [00:14:30] accommodation of property … There are lots of ways of constructing that portfolio. What I would say about your daughter … A lot of people who are looking at the [inaudible 00:14:39] market at the moment is that, my parents didn’t buy the big family home first up. And they didn’t buy necessarily in the suburb they first wanted to buy in. And there is that idea that maybe what we are thinking, and what we can afford, are two different things. And there might be an adjustment there to “Yes, you can buy a property, but you are choosing [00:15:00] to be a property in a place you don’t want to live.” And that’s fine. But being aware of those decisions that you’re making. I think that there is an element there that needs to be addressed and also what you’re wanting … Which your parents took maybe ten, fifteen years to get you one on day one, is slightly unrealistic as well.
Kylie Kwong: So, how do you know the right person to speak to? There’s so many financial professionals and accountants. Who’s really the right person to guide you on I guess … There’s so many current market retirement plans out there. Can we depend [00:15:30] solely on these? Or can you do it yourself and not seek professional advice?
Claire MacKay: I’m a big believer that everyone needs a financial plan, but not everyone needs a financial planner. And I’m a financial planner. That’s my job. So, I do believe that you can do it yourself. Just like you can clean your house yourself, and you can clean your car yourself. You can do this yourself. However, if you are gonna do it yourself you need the discipline, and you need the self awareness to make decisions that are in your best interest. Working with a professional … And I would always … [00:16:00] As a [inaudible 00:16:02] I’d always being saying look for someone with appropriate qualifications. Someone with expertise. Someone who has experience working with people like you. They are giving you that guidance, that discipline. And they’re enabling you to make decisions, and work in partnership with them so you can then focus on what is actually driving your wealth, which is your career. So, you can do it yourself if you have the time inclination and attitude. But if you don’t, and you want someone to work with [00:16:30] you in partnership, then finding someone with appropriate experience, qualifications, and of course [inaudible 00:16:36] financial planning specialist.
Or if you’re looking at doing it with a [self made super fund 00:16:41], then again looking for a [inaudible 00:16:43] account with a [self made super fund 00:16:46] expertise as well. But then also making sure that you get them and they get you. There has to be a meeting of minds. Both from an investment philosophy perspective, but also that your financial planner is gonna be helping you create this wonderful strategy that [00:17:00] gets to your dream retirement. But along the way it ain’t gonna all be smooth sailing. And so knowing that you are partnering with someone who understands you, and that you feel comfortable talking to about your concerns … I’ve got a client who’s just retired, and he sent me an email at 3am saying “Claire, I’m concerned.” And he was very open with his concerns. And the fact that he felt comfortable … He obviously woke up at 3am, he felt comfortable sharing with me his concerns and he’s a high [00:17:30] achiever. Very successful. Means that when we can have an open conversation and address that.
And when things aren’t so good. When things get tough with family, health issues, or other concerns, that you know that the professional you’ve partnered with, has your back. That you can focus on the things that are important, like your family, while they’re looking after your finances. And when you can readjust back into engaging with it, you know that things have been going along while you’ve been focusing on things [00:18:00] that are far more important at the same time.
Mike Lynch: So is it ever too late to start thinking about that retirement plan?
Claire MacKay: Never. Never. I mean I had a client who came to me six months before they wanted to retire. The options we have are a litter less. I’ve gotta admit. There’s only certain things I can do there, but, it’s better than saying it’s all too hard and giving up. There’s always things you can do to improve your situation.
Mike Lynch: Final tips about … Your thoughts about what people should be thinking about retirement?
Claire MacKay: Well, get excited. I really think visualising what retirement [00:18:30] looks like, means that you are much more motivated to do the hard yards now to make it realistic. The other thing I think is that … Be confident that regardless of what our politicians are gonna do, and they’re gonna see [mock changes 00:18:45] in this, have a plan. If you’re not having a plan, than you’re relying on external forces that don’t have your best interest at heart. So by taking control, you’re actually creating your own future and that’s the [00:19:00] most exciting thing about working with people planning for retirement. Because then, we can then actually take off all those achievements. That trip the Tuscany. The cruise, the long way–
Mike Lynch: The bucket list.
Claire MacKay: –It is so exciting. You can’t imagine the excitement that I get as a professional seeing my clients take those bucket list items off.
Mike Lynch: Claire, thanks for joining us on the Acuity podcast.
Claire MacKay: Thank you Michael.
Kylie Kwong: Claire MacKay is a director and head of advice at [inaudible 00:19:29] Financial.
Claire MacKay: And [00:19:30] that concludes episode ten of the Acuity Magazine podcast. We encourage you to subscribe to the podcast at “acuitypodcast.com” or on iTunes. “Acuitypodcast.com” is also the place where you can keep up to date with our latest interviews, or view the show notes for each episode. You can also email us directly “[email protected]” There’s lots more ahead on the Acuity podcast. Until next time, bye for now.
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