TRANSCRIPT: #11 Alice Stolz and Andrew Boal
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Alex Brooks 0:00
You're watching the Midlife Shift with Alex Brooks, and this episode will dive into the smart moves you can make in your 50s to live better in another decade or two, or three or four, depending on how long you're going to live, hit the bell to like, subscribe and follow for all the juicy conversations to thrive after 50. Welcome to the midlife shift, juicy conversations to help you thrive after 50.
INTRO
Everybody wants to live better, wants to look better, wants to stay younger.If we are hard talking about the future, there's nothing better you can do than to make sure that you've got some more.
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Alex Brooks 0:54
Your home and where you live could be the secret weapon to plan a great retirement. Today, we have the amazing superannuation guru Andrew Boal and national property editor from Domain, Alice Stoltz, here to chat with us. Alice, I want to know when you retire, and I know you've got a house full of teenagers right now, and you probably don't even imagine that you will, but when you retire, where do you think you'll live? What sort of house will you be in? Because you raised three little kids in a Parisian apartment, right? Like you've done this full spectrum. I
Alice Stolz 1:25
did. So I sort of feel like I've done everything in the inverse, talking about, you know, often we see retirees moving abroad at the moment, and I feel like I sort of did all that much earlier on that the thought of actually traveling as a retiree, I just, I cannot know the energy for that, and I've done all that. Do you want to mean? So when I hear people say that I'm kind of like, wow. On that note, I just want to get these out there about my sort of desire. I feel like I need to disclose this to Andrew, about my disastrous superannuation. So my husband and I moved to Paris in 2002 2003 we went for a year or two and got a great adventure and sort of forgot to come home. And we're there for about 12 years. Now, my husband is half Swiss, or has a Swiss passport, so we're employed on local European contracts in both of our jobs. And the French system is delightfully French. And being socialist, the superannuation system, there is a pension system that you pay into, and then the government dictates what that is worth on the day you retire based on how many points you have in the system. Guys, it's like Qantas, frequent flyer program, but even more ambiguous, but they are literally
Alex Brooks 2:31
marching in the streets in completely over this pension system, completely out right?
Alice Stolz 2:35
And they always are. They're just because there is such a set of sense of entitlements. And I think that's the tension in France. You've got this socialist system that people system that people feel utterly entitled to, no matter where they are in the system. All that to say is that my husband, I paid into the French system for that 12 year period, which will look sort of measly in the scheme of our whole life. Yeah. And unfortunately, because we weren't expatriated, we missed out on 12 years of paying super in Australia. Ah. And for years, my husband actually will be like, oh blah, blah, and I'd be like, oh Adam, who cares? You know, just pass the bottle of Beaujolais, and let's just keep living this great life and having children here and being in this sort of wonderful country that, you know, rewards people for having children and has beautiful art and food. And then we got back to Australia with three children in tow, and didn't even have a house at that point, and we realized that we were sort of like the cobblers children, having the worst shoes in that Our super had just taken a massive dent in what should have been really crunchy years of earning. Yeah, we hadn't paid into it, and nor been in the property market as well. So all that to say is, I think the importance of looking ahead and constantly planning as boring and arduous as it can feel is not lost on me anymore, yeah. And
Andrew Boal 3:47
that's why, for most people, the 12% is compulsory. So you don't get a choice to say, No, I'm going to opt out of that.
Alex
You don't have to think too hard.
Andrew
Exactly, right? So this next generation, they're coming through, they'll have it for 40 years, and they'll get to the end and go, Wow. Well, well, we
Alex Brooks 4:01
hope, we hope, we hope,
Alice Stolz 4:03
that's, that's what, and except if they went overseas, yeah, I'm gonna say, but even when we think about these adult gap peers, and we know that more from the 20s and 30s are having sabbaticals, yeah, and it can just all change very quickly that this isn't you meet someone, fall in love, and you stay in the country, and you don't think you're going right, and that's exactly right. Nest egg is no longer
Andrew Boal 4:20
so that that goes to the gender equity things. And so a lot of the gaps with children or they work part time, and so all of the gaps that emerge for women through that. And so there's been different suggestions put out. There's another one by the coalition recently about equalizing superannuation. Look at the end of the day. We do look at or superannuation should be looked at at the household level. Yeah, that's right. And so if the part one partner, male or female, has taken some time out and or substantial time out, and has $300,000 and the partner has 1.7 that doesn't collectively, we've got two, yeah, that's right, you know, like, so you look at it. As a household, except, you know, except people get divorced well, and when they do, it should be split.
Alex Brooks 5:05
It's very empty. That is true. And I am on my second spouse, right? I know how arduous this is, because it took me eight years to get a divorce, precisely because the super splitting was in contention, yeah, and I had to, that was my first brush with an actuary, because I had to get an actuary to crunch the value of a defined benefit fund, and then we had to negotiate for two years, and then I had to, then I had to take court action. So I had to spend 20k like, getting this to court to find, like, it was actually not very easy.
Andrew Boal 5:42
Yeah, I've got a lived experience with a friend, and I don't think there. They had much super He ran his own business, and so, yeah, wasn't doing as much.
Alex Brooks 5:50
But that's another big gap in the market, is people who run their own business, some some years you can contribute, and some years you can't, right? That's nature.
Andrew Boal 5:57
Keeping the business going is the main thing. And when they divorced, did the house and everything else. And I said, Now, what about the Super? And said, I'm done. I'm done fighting. I'm not going after any of the super, you know, like, so that's
Alex Brooks 6:09
very common. I seen that. See, unfortunately, I am the world's biggest pain in the ass. And I just every last bit I could not, no, it's my only strength is being a pain in the ass. A lot of people will tell you that, but it
Alice Stolz 6:23
is a challenge with it, isn't it like it's something that can feel so abstract as you're living your life mindfully thinking, push hard at work, look after my children, renovate my house, this abstract notion of one day, how much will I need per year, and is it 100k is it whatever it might be, but that it feels so abstract, I think, for so many people, yeah.
Andrew Boal 6:43
So I helped her get some financial advice and reviewed it and but the big thing that we decided getting back onto the housing topic, yeah, so one of the things that said, the biggest thing that you can do is, if you've got from the settlement, yep, this much money, you're not renting, yeah, and living off that you are buying a house having a mortgage that'll be exempt from the Means Test, you'll get the full age pension correct, and so you will live a much better life if you own a property rather than renting. If you can do that, find a way.
Alice Stolz 7:14
And I think that's the point. Because I think even though we've talked about that, some people are enjoying the freedom of renting as they get older, which I can completely
Alex Brooks 7:21
understand, living in a better location. Yeah, there's now build to rent developments that are actually pretty nice, but I think they're for the upper end of the
Alice Stolz 7:31
market, though. Yeah, and I think that's a very different model. But I think if people, as of today go out rent, you look at what vacancy rates are around the country, and they are on the floor. And I think that emotional instability and psychological instability that can be you left, you left with during a point of time in your life where you might, you know, I just think that idea of bricks and mortar is actually quite appealing to a lot of people for that very reason. Like there
Andrew Boal 7:59
was one story that came through talking with people in the industry about annuities, and one of the classic parts of that story is like, we maybe put enough aside so that the annuity will give you guaranteed income to cover your needs
Alex Brooks 8:13
before you get into annuities. Can you explain what they are? Because an annuity versus a pension is sort of the way most normal people would think of it, right? You can turn a lump sum into a pension, but an annuity or a fixed income stream is slightly different. Can you just explain that nuance first?
Andrew Boal 8:29
Well, for all intents and purposes, one so there's the age pension, yep, and that's Yep. So an annuity, and there's different types. We can go through some of those, but at the end of the day they will pay an income stream like a pension, and it will be paid until, well, until you die. That's right, yeah, depending on the type of annuity, the income amount can be guaranteed, or it could fluctuate with investment returns. But at the end of the day, it will continue to be paid no matter how long you live. So sometimes they're used as part of a it hedges the risk of longevity. It hedges the longevity risk. It does. It takes that out of the equation, yeah, at least for your financial needs. And if you've got want to spend more than that, and you can afford to, then you can invest that money some other way to pay for your wants. So quite often, the needs are covered by the annuity, and the wants are covered by an account based pension.
Alex Brooks 9:20
And that could be a good way for everyday people to think about it, right? Because all of us want to have the basics covered. And that's the bit that's so abstract we can't work out how if we live on, you know, a combined household income of, you know, 200 grand a year today, and we're paying a mortgage and we've got teenagers at home, we can't imagine that time when there's no kids at home, and when I don't know, you may choose to live in the same house or not, but you can't compute how it works.
Andrew Boal 9:48
So this, there's one situation that was came up as a story in a conversation like this, and the lady, I think she'd be widowed or might have been divorced, but she said, I want to buy an annuity to cover my mortgage. Payments in retirement, so then I know I'll never be kicked out of my home. That was only thing she wanted to be certain of. The rest, I can manage the risks around everything else. I just don't want to ever be homeless.
Alice Stolz 10:12
I love that clarity that she could just actually drill it down to that one thing. Because you can sort of imagine that, can't you that it's like, if nothing else, you know, surely the neighbor next door, there's always Meals on Wheels, or someone will help me if I'd needed it, except just providing that roof over a head was kind of it. So
Andrew Boal 10:27
that's Yeah, you said the word security. People want to be able to say, I go to bed at night and I know that I'm in my safe haven and I'll never lose this no matter what.
Alex Brooks 10:37
Yeah, and because we know that more people will be heading into retirement with mortgages. I mean, Alice house prices, how much have they gone up since?
Alice Stolz 10:46
I mean, it's just, it's, it's revolting. Looking at that growth. When you think about younger generations into the market, if you're an owner, it's fantastic. The uncomfortable truth about the affordability issue in this country at the moment is that for a lot of people, you know, it's, this is the golden time of like, people rubbing their hands together, and they're doing it quite discreetly, because they've made so much money out of property, right? And sometimes, and they sort of those people probably think, well, my kids will be okay, because I'll end up giving them that money down the track. And it's got this sort of Jane Austen scenario of intergenerational wealth. It's very Janos, right, like, and if you, if you don't have that, that's the challenge. And I think, yeah, that's, that's the tension that we're all in at the moment. So the
Andrew Boal 11:30
classic situation for property and, like, think about, like, other investments, is that you really should be getting a 3% yield from a property investment and three and a half percent capital growth. That's a six and a half percent return, which is consistent with what you might expect to get a bit less than from Yeah, a stock in the stock market, yep. Why should? But in the last 20 years, it's between five you've actually got a six and a half percent capital return. Yeah, that's right on top of the yield. And so with wages growing at three and a half percent, capital growing at six and a half percent, no wonder if this is the gap between wages,
Alex Brooks 12:07
and this was why the French became socialists, because
Alice Stolz 12:11
capitalism was evil. They all took to the streets for this very reason, right?
Andrew Boal 12:15
Well, we've gone through this period. So there's, you know, we've had zoning issues and the ability to get developed, redeveloped quickly, and then interest rates have dropped from all time highs of like 18, 19% in the early 90s to 0% covid And so when interest rates drop, what happens
Alex Brooks 12:33
to prices? Yeah, exactly. They just
Alice Stolz 12:35
go and we're seeing that play out right now. The market's often racing again, because we've always had this pent up demand.
Alex Brooks 12:43
As we know, though, the property market doesn't behave homogenously. It's not like a share market, right? Like it's very different from suburb to suburb, even within the suburb. And you know, just this week, we had all that climate data come out showing, you know, whole swaths of Australia will likely be potentially unlivable. And that's, it's not that far away. I mean, it certainly is long term. It's not going to happen tomorrow. When will this madness kind of change?
Alice Stolz 13:13
I think there needs to be sort of a shift psychologically, Alex, because I still think people will still buy in high risk areas, even aware of the risks of climate, whether it's bushfire or flood or whatever, no, and we've seen that play out in the past year or so, particularly in New South Wales and in Queensland, Byron
Alex Brooks 13:31
Bay, still one of the most expensive areas, and
Alice Stolz 13:33
that's in Australia, and you see these prices go like that. And people, I think maybe it's part of our sort of Australian way of life that we just sort of think, you know or and I don't know that people have that much reliance on the government, per se, but I just think that it's the conundrum for people is also, well, what else can I afford? And we also have this sort of idealistic approach to where we live that we don't often want to live far from where we've grown up, or where or where we've sort of hung our hat for a number of years. So yeah, we get quite emotional about it. And I think that people like, oh, well, I'll pay the price of living in a higher risk area if it means I can be near my sisters and my best friends and yada yada yada. And there is a high price to pay, and sometimes the most extreme sense, you know, life or death. Well, that's frightening,
Andrew Boal 14:17
isn't it? So we've got, we have made some adjustments. So if you're now wanting to build in a forest, yep, then you got it. There's building codes require fireproofing, fireproofing, and all sorts of other things, and it'll
Alex Brooks 14:30
cost you four times as much to build. The real issue, though, is the insurance of your house. So as an actuary, there's already big swaths of Australia that are pretty much uninsurable. You know, when I was editing choice, you know, up in the tropics, some people were paying $40,000 a year to try and insure their house. Now that's only going to get higher, right?
Alice Stolz 14:50
Yeah. Or some people live without insurance. Some people, they now live
Alex Brooks 14:53
without wealth because it's not worth it, yeah.
Andrew Boal 14:56
So the flood prone areas, we haven't changed the building codes for flood. By the way, we have for five, yeah, but not for floods. And so how do we mitigate flood risks? And so the Northern Rivers region in New South Wales, you know, there's people probably should be relocated to other areas and given incentives to do so, and the buybacks. So who pays for the mitigation? But insurance premiums are $30,000 a year. Well, that's unaffordable. So if something happens, I just hope the government bails me out. Like that's essentially what people are just saying, is that the government and the taxpayer becomes the insurer of last resort, which means, why the government? Well, well, they that's the question. So this is, this goes to where the actuarial side comes in. So what is the cost of making good something making good later on, versus what's the cost of mitigating up front.
Alex Brooks 15:44
So if we had to, can you crunch that model for us? Somebody
Andrew Boal 15:48
can. There's an actually out there who does this. It's in the general insurance area. They do this all the time, and the reinsurers will have this. And so all the data is available to say, well, this is what the costs will look like if we spend, instead of spending $200 billion after it happens. Why don't we spend $30 billion building a wall to stop it happening? Yeah, correct, or stopping the impacts of it happening. And
Alice Stolz 16:09
I think also, when you think about governments and their intervention in that, it's also, I'm going down a bit of a different path here, but this idea also of or what a government's doing to really, genuinely trying to move the needle on making home ownership more obtainable for younger people, yeah, because if they're not, that becomes a problem that just gets kicked down the road that we're experiencing now, right? It's all and I know the government would argue, well, we're offering this and that, but we know what. We know what all that does just stimulates the market totally. Why aren't we looking at things like, you know, dissolving stamp duty or replacing it with a longer term land tax. There are other things that one can do. I believe it encouraging downsizing more profoundly than what's happening now, because
Alex Brooks 16:47
the downsizing conversation is really interesting, because the research I read yesterday, which I sent to Andrew, said something like 80% of people do not plan to downsize, no retirement. They absolutely plan to live in their own house, you know, forever and ever. Amen, as Rachel lane and Stephen Huppert sort of said, you know, everyone has this sort of delusion that you retire, you live in your house, and then one day you just die in your sleep.
Alice Stolz 17:12
Did it talk about the reason why? Alex,
Alex Brooks 17:14
no, it just talks about intentions, right? And that's this mental model problem we've got around abstract stuff for the future that we haven't come to terms with is very hard for us to deal with as a risk, right? As human beings, it's hard for
Alice Stolz 17:29
us to think about it. And I think what I think often, the main reason why is financial. Yeah, it costs too much to move Yeah. And second of all, second of all, what I want to move to does not exist. So people want to move to, you know, a lower maintenance style apartment or townhouse or something with an oversized courtyard, a place for their grandkids to stay, etc, etc. We can talk more about that if you need to, but my point is, and I also want it in the area that they are now often with And therein lies the problem. So we look at what is happening in Victoria, New South Wales in particular. All this massive supply is going to hit the market. That'll be a nice problem to have. It will eventually hit the market. Yes. But is it the right type of supply that people want to want to live in? Yeah. What do
Andrew Boal 18:18
you mean by that? Like you told me, the high rise apart, yeah.
Alex Brooks 18:22
Is it a two bedroom apartment with a courtyard, or is it, is it big enough?
Alice Stolz 18:26
And I think a lot of people, particularly downsize, is sort of concerned about the idea of sort of body corporate and like that, these things. And I think if there are, there's been strata disaster, yeah. So that's Australia. There are other options. There are other ways of living. And I think in my ideal world, there is a mix of everything. Yeah, so that.
Alex Brooks 18:45
But what do you want to live in? What are you and your actuary husband? What you know thinking about?
Alice Stolz 18:50
I actually think there's a gap in the market, and if I win the Lotter, I'll call you to and we'll sort of get hash this out. But I don't know why there's not more living, more buildings or sort of communities done in a beautiful way that aren't, aren't basic and meat and free veg style and make you feel depressed and not one to live, yeah? But a more that sort of, not like that Nightingale, which is that sort of really instilling this sort of sense of community in a building beautifully, thoughtfully designed, sustainably designed, yeah. And you know, areas that you can dip in and out, like you look at buildings that were built in the 1920s we've got beautiful buildings in South Yarra, for example, and they were designed without elevators at the time, but these sort of generous stairwells to encourage conversations between neighbors, yeah. And I look at how we lived in Paris, and we had all these old people in our building, and every day, they'd walk up and down in the belong jury. If they couldn't move, they'd just come to us next door and say, I'm not feeling well. Can you please go and get my baguette? And this sort of touch point that you have with people all the time, I think is absolutely crucial. So I love the idea of actually Community Living beautiful, if I can live in the right sort of building and I don't have to smell. Chicken Teriyaki cooking.
Alex Brooks 20:01
Alex. And what's with the cauliflower smell in apartments? You know what it is? It's dark. It's bad
Alice Stolz 20:06
design. Yeah, it's not getting engineering right when they're constructing a building, because they want to keep the cost down. So because
Andrew Boal 20:12
of Paris, you mentioned missing a couple of times. Now, yeah, seven stories, yep, height limits. That's it. Living in a 35 story apartment, doesn't turn me on at all, no, but a five or six story
Alex Brooks 20:27
you're okay with that? Yeah,
Alice Stolz 20:28
absolutely. And with large windows and balconies and a view
Andrew Boal 20:32
like that's one thing about living in a family home is that you got a back fence, yep, and it's your next because we have downsized into an apartment. Oh, you happy? And we now have a view looking out over the leafy suburbs of Melbourne. And you go, and you wake up in the morning, rather than seeing your back fence, I'm now seeing bananas in a view. And you go, how does this so you don't see whilst you're in an apartment, it still feels open and spacious, yeah, because of the view. But
Alex Brooks 20:58
those apartments, you know, they are expensive. It's not it's not a cheap option. And I think you're exactly right, Alice. Is that most people are like, well, I'll pass some of my wealth to my kids, so my kids will be okay. But none of us are thinking collectively about everybody's kids being okay, because someone's going to have to pay to wipe our bums if we do end up in residential aged care, right? And we, we need those young people to feel housed and safe and willing to do those jobs, but no one really thinks of that. Maybe we need to be more like Parisians and get our fluoro vests. You do do that a lot more in Melbourne than we do in Sydney. You love a bit of a straight march in Melbourne. In Sydney, they're too busy, I don't know, drinking margaritas, looking a few
Andrew Boal 21:43
people on the bridge the other week. But that's, well, that's true, which
Alice Stolz 21:47
was, Sydney is geographically so much better for a protest, isn't it? Though, Melbourne at the moment, look at the poor CBD in Melbourne. I mean, that's the
Andrew Boal 21:55
other thing. Nothing better, though, for an international news broadcast, there was a protest in Sydney on the Harbor Bridge,
Alex Brooks 22:03
because you can get the shot. And it's now that we live in this age of so much misinformation. There's so much information coming at you. One clear story is so much more powerful than it used to be. And I mean, I think that's why that Sydney protest happened. I mean, the premier did his very best to stop it, but it worked, right? Whereas Melbourne, you have protests Billy everywhere,
Alice Stolz 22:25
and most businesses in the city are on their knees like they are just the stories coming out of it are absolutely horrendous, like restaurants, retail has just been decimated. Wow, so yeah, I mean, it's
Alex Brooks 22:39
because politicians aren't doing their jobs and listening like, you know, sort of holding people to account. It's
Alice Stolz 22:45
an interesting I feel like it's sort of the canary in the calm. I mean, we don't want to get into Melbourne too much, but it is this issue I think in Melbourne that the city has been neglected. It still didn't really come back after covid, and now it's been now it's had this whack to it. I mean, I think it's horrendous. I think that there needs to be a again, like not not propping up the economy is detrimental to everybody, every, everybody,
Alex Brooks 23:09
everybody. And going back to that, when you're imagining your super and your retirement, you don't know what sort of economy it's going to be. You have no idea what the markets are going to do, and you equally have no idea what your health or longevity is going to do. All of us are very statistically likely to live a hell of a lot longer than we used to. I have the statistics. It's something ridiculous. So week average lifespan might be in your 80s, right? But that actually means nothing, because Australian life tables, invented by an actuary. Are these things sort of give you the likelihood of how long you're going to live, and the older you get, the more likely it is you're going to live even longer. Is statistically how it works? Yeah.
Andrew Boal 23:52
Can you talk to us about that? Well, that's, I think there's also going to be a two ends of a spectrum talking about here as well, because averages is one thing, but that's misleading. Yes, so fallacy of averages, it is. So look and it's one thing. It's an another unfortunate outcome from the wealth we've been talking about is that a few years ago, I looked at some studies, I'll be 20 years ago, looked at a study in the UK, because they had a lot more pensioner data than we had in Australia, and the wealthiest 20% lived about three years longer, yeah, than everybody else. Oh, that's been depressing. Well, well, it gets worse, because that was 2030, years ago. But now that has grown so in Australia, we've now got data coming out ourselves, and so the wealthiest 20% are living a lot longer, and the poorest 20% there might be a gap. Might be gap of five or six years difference between the wealthiest and the poorest 20% of our community. Now, the poorest 20% will largely live off the age percentage, as I said earlier. So they're taken care of the wealthiest 20% whilst. To say the average might be age 85 and 25% of you might get two to age 90 or 92 the wealthiest will live another five or six years on top of that. Well, there's they got to make their money last
Alex Brooks 25:11
well, there's a new Mercer retirement calculator, and it actually calculates to 102 Wow, I've got the numbers now in front of me. So a woman at age 65 has a 50% chance of living to 91 so that's way beyond the 80s. She has another 25% chance of living to 96 and a 10% chance of living to 99 Wow,
Andrew Boal 25:34
and if she's wealthy,
Alex Brooks 25:37
yeah, it could be 110 they say that we're going to see someone This
Andrew Boal 25:41
is all because of the way they eat and look after themselves. They can afford to look after themselves and and if I do the
Alex Brooks 25:48
replacement when their knees sticky and like you can see it now, like there's, you know, wealthy women in their 50s still look like they're in their 30s, because they can get the, you know, they can pay their 400 bucks a month for their weight loss jobs, so they can avoid middle age spread. And you can see that, you know, women who don't live in as wealthy areas actually look their age, and you can see the marks difference. And so for men, those stats, a man at 65 has a 50% chance of living to 89 which is still a lot higher than most men imagine, and a 10% chance of living to 98 so those, this whole idea of our longevity is actually something to think about, because what we talked about with the Rachel lane and Stephen Harper podcast is that you need to start thinking so we go up the hill as we accumulate for Super and buying a house, right? Generally speaking, we're all very good at that in Australia, because we've got enforced savings with super and we're property obsessed, so many of us try to buy a house, even though it's not as big a house as we might have been able to buy 30 years ago. So we're very good at getting up the hill, but coming down the hill, it's too abstract. We don't understand it. We don't engage with it. And we talked about, I thought there are only two phases, which was like the Go Go years, where, you know, you might get your caravan and go touring around Australia, and then the sort of go slow years, because the ask for figures break your suggested spending into those two things, you will spend less in the Go slow years, once you're about 82 because you know your knees really do Hurt, then you know you got a few more issues, and you don't really want to go as fast as you did when you were in your 60s. But then Rachel Lane brightly pointed out to me, with a smile on her face, that there's also the no go years, which no one wants to talk about. Dementia is the leading cause of death of women already in this country. None of us want to think about that. It's frightening to think about it. Now, who is going to look after you if you have dementia? You know, how are you going to pay for that care? So that the no go years, so you've got Go, go years. Go slow years and no go years to think about. And how does your money pan out over those that's sort of interesting, because if you're in the no go years, I mean, Denise Drysdale said she just wants access to a Dunlop pillow and for someone to put it over her head. You know, she wants to be able to determine the no go time herself. And I would argue, a lot of people sort of want to do that, and we have voluntary assisted dying laws, but not really for dementia, because you have to be of sound mind. How do you fund this? Come on, actually. How do
Andrew Boal 28:27
you find this? So the cost of aged care is going to more than double over the next 50 years. Wow, because, because we're going to have more older people.
Alex Brooks 28:35
What online am I going to have anyone working in aged care to do it? That's the real question,
Alice Stolz 28:40
right? And after it doubles, Andrew, does it go down again? Like, is that sort of, you modeling explosion? Like, and then
Andrew Boal 28:47
when they know, I don't
Alice Stolz 28:48
think it does, because it stays high, but it
Andrew Boal 28:50
does because, basically, we've had the wave of the baby boomers come after the Second World War. Yeah, and, and those we've had with whilst birth rates have declined since then, you know, the size of the following generations, the millennials and so forth. They're similar sized generation baby boomers, because they've had four kids. They all had, each had three. They always had two, yeah, but there's a big wave of people still coming through past with migration on top of that. Yeah. Okay, so with all that balancing it out, it's it might you better get used to it basically, though, yeah, it's a quite a high cost, and I've got to deal with this because my dad, I've got two problems, yeah. One is longevity. The other is dementia. My dad died of with Alzheimer's at 94 sorry. And his mother died of Alzheimer's when she was 94 so they both lived in their mid 90s, but with Alzheimer's for last four or five years, yeah. So look how they've both seen aged care facilities. It's still for a number of years, for a number of years.
Alice Stolz 29:46
It's very hard to describe it. How does that work financially? Then, like in that instance, was that for the average
Andrew Boal 29:53
person? Yeah, this is the great thing about aged care, is that I said this at a meeting with some clients earlier this week, at a strategy. Date. People think about aged care twice in their life, yep, putting their parents in correct and going in themselves, yep, and they start thinking about it two weeks before they do it. Well,
Alex Brooks 30:09
it's usually, and it's usually in a hospital car
Alice Stolz 30:11
park, right? Like it's, oh shit, I missed that window of this happening, and now I'm here. Yeah,
Andrew Boal 30:16
you do not plan for it. In four years time, I think I might go into age Yeah, let's, let's do some investigation and find out,
Alex Brooks 30:23
talking about models, yeah, no one thinks about resort. Yeah, that's
Andrew Boal 30:29
right. And an emergency situation, and can be really costly, and it's, and can be, and it's, you've got to make decisions, yeah, so do I fund it using equity from the house and have
Alex Brooks 30:42
a which is a residential accommodation deposit, or do
Andrew Boal 30:44
I just pay it out of the income from the age pension or whatever else? The RAD is actually probably the more expensive way to do it, but it's the simplest, because make up say, I'll just put the user,
Alex Brooks 30:53
yeah, I'll just take my home, transfer it into my aged care costs.
Andrew Boal 30:57
But overall, probably more efficient pay the income as you go inside.
Alice Stolz 31:04
So not your four kids are getting a little bit less in their inheritance when you're doing that also, though, and you keep what I mean, so
Alex Brooks 31:10
it's likely making the decisions. That's what's so frightening about the
Alice Stolz 31:14
conflict of interest. This is the what
Andrew Boal 31:16
we talked earlier about, the health and age care. Is another one down the track, is that the cheaper model for most situations is to have in home care for as long as you can, because hospitalization and residential aged care are expensive models. They are expensive you can afford to have carers come in to do things for you at home. At home, it's generally cheaper,
Alex Brooks 31:41
but so hard. And given that your kids are likely the people making the decisions about your care, and if they haven't got a house, they're going to make decisions that are different to kids who are financially secure and actually love you for you. You know, I've got kids, they don't always love me for me. Back to that pain in the ass thing. You know, they don't, and you couldn't blame them, really. You know, if you live in a dog eat dog world, you'll make dog eat dog decisions, right? And I think what we talked about in some of our previous podcasts is that if you sort of move into this community living type of model, and you're living with other people making these types of decisions. The model's not so abstract, and you can actually plan for it a little bit better if you see it around you. But the way we do it now is that we just deny it even exists,
Alice Stolz 32:31
and we also, I think, miss the window when it's possible and plausible. So I think, Andrew, you'll have to fill in stats if you know any, but I don't like the window when you're thinking even about downsizing, there's a time in your life when you sort of fit, fit for it ready to go, and it's
Alex Brooks 32:47
still in your Go, go years. So that's what I mean. You don't know the GO GO TO no go time frame for you, that's
Alice Stolz 32:53
right. And then I think you know, if you get to that sort of second or third wave that you're talking about, Alex, you know your capacity, your mental clarity and all that just is all too hard. I mean, like even buying a house is just hard anyway, right? Let alone, yeah, compromise. Or you've been recently widowed, or, you know, you've had huge change in your life, or developers are knocking on your door saying 3 million, that's what, you know, bundle up with your neighbor, neighbors, like there's the complexity of it is just, is quite revolting, isn't it? Well, I was
Andrew Boal 33:23
really lucky that dad found the garden too hard. I've had enough. That was lucky. And so it's time for us to downsize. So they made the call, and once mum and dad made the call, well, they were in. They found a residential community, yes, and over 55 within there, within two months, wow. The house done this. We're off. Great, wow. So they had this house they owned in the residential community not far from where they live. That's another issue about location and every community that you're familiar with
Alice Stolz 33:58
and your shops your whole life, yeah, yeah.
Andrew Boal 34:01
And so they moved in and had a bowling green and a so on Friday nights, they could go there and have a drink with other people in the community. And so there was life happening there, and there was people in there who were 59 and people in there who were 91 and then up the back
Alex Brooks 34:19
was the more high dependency type care. Yeah, that's right. And my grandparents
Andrew Boal 34:25
there, but, yeah, but they basically moved from here up to there. And so when dad went in, but mom didn't have to, she was only a short walk,
Alex Brooks 34:33
exactly, so she could have her meals with, with, with them. And and this is the other conundrum. If you are in a couple it's much cheaper to retire. It's more efficient. You know, it's the single and they're usually women. Single women actually bear the highest costs of retirement. But when you're planning this aged care transition, it's not so easy when one partner needs the care and the other one doesn't qualify. Because how do you make that? Decision, and do you want to factor that into your retirement planning? Because, again, that's not something in our abstract models that we're thinking about. You know, if you have to nurse your partner through I mean, dementia is, is a very long journey of care, and it can and it can be supported. There's a really good website called Violet, and I urge you to tune into a podcast we're doing very soon about aged care, but how do you think about when your partnership might change? And I think
Alice Stolz 35:29
that's why, for me, the idea of the concept of in house care is kind of, you know, the most ideal, yeah, because you're in your own environment, whatever that is, and hopefully you have downsized, and you do it on your own terms, in your own space, so that one person provides the care, gets the care that they need, and the other person you know is in their own cocoon, I guess.
Alex Brooks 35:50
But subject to this, your houses, if you have someone come into care, you need a very large bathroom with a very wide door, no bathtubs, no one's getting you in and out of a
Alice Stolz 36:00
box, and heaven forbid stairs, heaven forbid a veranda, period home, right? Like, I mean, we all and the more sort of design centric we all become, the more kind of complex we become in our architecture, right? And I think that's a really valid point.
Alex Brooks 36:14
So accessibility, accessibility and universal design, are features that aren't widely prized, especially in real estate photos, and they really should be right, because a hallway that's just that little bit wider could accommodate someone living at home for another five to 10 years, versus having to go into a residential
Alice Stolz 36:33
age. And therein lies the problem, I think, with a lot of sort of more cookie cutter style apartments
Alex Brooks 36:38
in particular, that the hallway applying those universal design principles,
Alice Stolz 36:41
you know? So I think that's when to be more thoughtful about what we're designing in that space and ensure it's meeting the needs of the community.
Andrew Boal 36:48
So you've, you've talked about the availability of suitable homes. So like, yeah, the people who are going to die in their five bedroom home, that's where most of them will so how do we free up those because, you know, you've got, you've got a two year old child, yeah, that needs a bath. Yeah? Yeah, totally, totally. But I'm living in an apartment without a bath, and then there's this person over there is 83 years old, living in a five bedroom home with a
Alice Stolz 37:13
bath, yeah? So I do know three bedrooms upstairs, which they can't get to. I do
Alex Brooks 37:17
know of families that have literally swapped where they've literally gone, we'll flip it. And there's another family I know where the daughter is disabled and she's got two kids, and the parents willingly built their own granny flat so they could be close by to help, and so on and so forth. So there is a lot of that self insurance. That's what an actuary would call that, right?
Alice Stolz 37:38
And I think that's why there's that appeal, like we saw it rise through divorce of people, sort of nesting, you know, keeping the one family home I know, and then, you know, the kids stay there when the spouse the partners, yeah, that house, right, that's right. And I kind of, I like that idea a lot, except I worry about, sort of the emotional instability of not having your own place, like for the adults involved. Yeah, good for the kids I acknowledge. And then we think also about this multi generational living, and I think we are seeing different iterations of it with granny flats. We're also seeing it with sort of downsides, like, Well, kids and their kids have that part of the house all move here, and the teenagers move there, and they're all sort of flipping and flopping a lot. And there are some incredible examples, actually, of architects who have done this through, you know, it looks of like something out of Harry Potter, like amazing sliding walls and and windows, and through clever design, you can actually do it. Yeah, it's the cost involved, that's right, and the ability, I think, for people to think outside the box, I guess, with it. But there are options, but they're often, at the moment, very expensive.
Alex Brooks 38:37
And so what sort of housing in an ideal world, would we have available in our capital cities? You know, let's just fantasize. We've talked about some of it. What sort of housing would be better for a population that's getting older and that needs more young people to be able to afford to buy into the market?
Alice Stolz 38:53
Yeah, I think. I think more lower density, and definitely courtyards and balconies. I love the idea of communal laundries. People will disagree with me, but I love that idea of, like, almost again, going back another century, of like, people coming together, like at the bath house, like Nightingale even has a bath house in their building, yeah. And, and I, I love that idea, though, did you have communal laundries in Paris? No, but we had to wash my under the sink. Oh, like it like Britain. Yeah,
Alex Brooks 39:21
I've lived in buildings with communal laundries, and so have I and
Alice Stolz 39:26
my 20s, it was awful, right? Awful. That's so angry. But again, I think with like minded people, though, this is what it goes back to. So if you're alien, retentive, like me about your laundry, and I'm like, Alex, I trust you, it's raining today. Can you grab my sheets when they when it starts raining through, because where friends have got a community in that arrangement, you have your pegs, I do and please don't, you know. So again, it's like mindedness, right? I also, I think, sort of not having lots of stairs, and I think is an incredibly important part, because I think that also is challenging for young families, the stair factor, it is. You got a pram, right? You know what I mean, that's another part of it.
Andrew Boal 40:03
So you talked about how horrible it was when you're younger, yeah, we were looking then for speed and convenience, yeah? So so many other things to get done today, and now I've got to go down there, and it's busy, and I have to wait. But when you're 70, yeah, and you're looking for company in your all the time in the world. What's wrong with going downstairs to do the washing and waiting having a chat to someone for a few hours? Maybe put a bar in next to it, have a drink with them.
Alex Brooks 40:30
But it would be even better if all those people would do the all the busy people's laundry. Oh, my God, how good
Andrew Boal 40:37
would that be? Well, that's another model as well as it how you bring a commute if you're going to have high level, yeah, that, you know, like in our apartment, which we downsize to, there's a, she's probably in primary school, seven or eight years old, little girl. She says, alone, she chats. And so it is having multi generational people living together. There's a lot to be said for that.
Alice Stolz 40:56
There is, and I think communal dining spaces like, I love this idea. And, you know, a lot of the newer developments now you'll have apps where you can book it all out, so if you only want your people with you, yes, you can have that. You can do that. But I sort of love that idea of and also communal gardens and rooftop spaces. I'm a massive fan of that. What about
Alex Brooks 41:14
communal chickens?
Alice Stolz 41:16
But it could be coming. Harry and Megan could be on to something, right? With their chicken coop. Chickens are big, right? Yeah, but I you do think of like neighborhood gardens and stuff like that. I love, I do love that idea of people coming together more than going away. And I think that is part of the answer.
Andrew Boal 41:34
So one thing that stops all of this happening, yeah, many. There's many, but it's the frictional cost. You talked before about stamp duty things and the like, is so each time, and I don't know how people did it that, yeah, each time you move, you're paying, back in the day, seven or 8% but now might be five or 6% stamp duty. That's hundreds of 1000s of dollars. You do that every seven years. No, I mean, I we lived in our family home for 27 years because I wasn't paying that for anybody.
Alice Stolz 41:59
You're an actuary. If you weren't paying it, though, Andrew, do you think you would have moved earlier if I said there's no cost in moving other than the removalist truck and the hassle and the hassle?
Andrew Boal 42:08
Probably not, because we had a great community. We had drinks on Friday night with the neighbors across the four four houses and and dare I say it, you know, the mums got together at five o'clock on a Friday, and they all had bit of wine. Someone made dinner for oh, yeah, kids, yeah, exactly. They had a drink, had chat, yeah. So it was a community, and so we would never have moved away from that until we had to. But like, that's Yeah are a huge problem.
Alice Stolz 42:37
I asked was, I would move now my children are 20, 1816, and I would move now. We would move now, if we weren't paying stamp duty, yeah? Because I'm sort of just bored, and it's a bigger house, and I'm like, You know what I mean? And I love it. It's not that. But I just, I'm ready for I also love sort of moving, yeah,
Andrew Boal 42:56
flush, 5070, $100,000 down the toilet, well,
Alice Stolz 43:01
and also, and what I want to buy, I become like this, what we call sideways movers, upsizing. Downside is like just moving sideways and then, and then some.
Alex Brooks 43:10
Yeah, exactly now, before we we've got to wrap up soon. But I wanted to say, Andrew, age pension is something we talked about last time. You believe that's one of the biggest misconceptions and misunderstandings in retirement planning. This is what you told. This is what you told me last time we chatted. Can you tell me why you believe that the age pension, the government age pension, is what I'm talking about.
Andrew Boal 43:29
Well, so there's thresholds to become eligible for it, and like, I think there's a wild hell belief that we shouldn't, you know, we should be self supporting ourselves and not falling onto the age pension.
Alex Brooks 43:42
Yeah, a lot of people are like, I don't want to be blood. You're on the government
Andrew Boal 43:46
exactly right. But then again, it's there. We've funded it for a reason. Cost of the age pension to the Australian taxpayer is currently 2.3% of GDP, and because of superannuation and other savings increasing, will fall to 2% of GDP over the next pretty good 30 years, whereas overseas, the cost of their age nine 10% so it's affordable for the government and the taxpayers to have it. What we see is a lot of people who are eligible for it don't apply for it straight away. That's
Alex Brooks 44:15
right, you got to apply just before your birthday. At 67 eligible. Start
Andrew Boal 44:19
thinking about it six months before, yeah, and so that, because you got all the information you got to provide, and people find that a hassle, got to prove all your
Alex Brooks 44:27
assets. It's always a hassle,
Andrew Boal 44:29
but it's worth it. It's $30,000 a year.
Alice Stolz 44:32
It sounds a bit like, um, going to public school when your kids are young, yeah. And you like, you've got this great primary school across the road from where you live. It costs nothing, but you don't. And parents like, Oh, should I? Shouldn't I? And your point is, you're entitled to it. We've paid taxes. You don't mean.
Alex Brooks 44:48
And the French march in the street to
Andrew Boal 44:50
get there. What people also will misunderstand is that most of us are going to rely on it. When you start off retirement and you have a million dollars in super good luck, that's fine, you know? Not eligible for the age pension, that's right, but you'll spend it down. Spend it down in four years time. You've now got 830,000 $30,000 you're now eligible for some age pension, that's right. And so most Australians, probably 80% of Australians, will end up, at some point in their retirement being eligible for at least a part age pension.
Alex Brooks 45:17
That's right. 80% of US currently,
Alice Stolz 45:20
wow, it's very high, but you have to open that gate before you turn
Andrew Boal 45:24
no one, and you don't, it doesn't get back dated, that's right, so you got to
Alice Stolz 45:29
understand. So there's no harm in just signing up and saying, Here I am. Here's my paperwork. Yeah, that's the paper. And you never know, obviously, what can happen.
Alex Brooks 45:38
And this is like the aged care assessment stuff as well. You've got to be in the system to take advantage of the system with aged care. So you've got to get an ACAT assessment before you need it. Is the
Alice Stolz 45:51
reality. Actuaries need to have a campaign out there, campaign like
Alex Brooks 45:56
actuaries for your life in
Andrew Boal 45:59
20 years time, we'll see 60% of people will have more than half a million dollars in the Super Yeah. Okay, so let's say half a million dollars. Divide that by 20, that's $25,000 a year. Yep, it'll roughly fund for the rest of your life, plus the age pension. You won't get the full age pension, but between the two of those things, for most of your life, you'll now have a $50,000 a year income, pretty good, some from the age pension, some from your own money. Not not 25 you can double that with the age pension. That changes your life,
Alex Brooks 46:31
absolutely life changing. The other thing I wanted to get in before we wrap is the world changing view that you do go into retirement with a mortgage, a $1 mortgage, maybe. But tell us about this.
Andrew Boal 46:43
Andrew, so we've talked about, I wrote an article last year on more than just a roof, so the role of the home and having using it getting a reverse mortgage later in life to help fund some things. There's a
Alex Brooks 46:55
housing equity access scheme run by the government as well. So which is a more affordable way to get a reverse mortgage. It's limited 250%
Andrew Boal 47:02
of the age pension. So if you want more than that, then you need to go into the private market. And there's many providers out there now for that. But, you know, there's a lot of discussion going on now about the how bad it is, how negative it is to go into retirement with a mortgage, but then promoting having a reverse I mean, hello, what do you want? So if you've got, if you've if you can have a mortgage going into retirement, and let's say the interest rate for that right now might be five and a half to 6% reverse mortgages are more like 8% correct, and you can pay it down if you got as long as you've got a redraw facility and some of those extra features, you can draw it down to $1
Alex Brooks 47:42
which you'll pay a monthly fee on right? So you might pay your $4 $6 a month to keep a mortgage, but you might only have $1 on your mortgage, and then if something happens,
Andrew Boal 47:52
so if the share market tanks, and you don't want to draw money out of your Supers, you let it recover. That's a money risk. Use your usual facility, and that will be you charged interest, maybe at five and a half percent, but your superannuation over the longer term should be earning 7% so you get that there's a timing issue, and then leverages a can be dangerous, but I don't think you know having some access to capital through a mortgage at the start of retirement is such a bad thing. Need to have advice, obviously. Understand what you're getting into, all the things to think about, but it's just flexibility. Why would you deny that extra flexibility for some part of
Alex Brooks 48:28
your life? It's pretty incredible what you can do with just $1 in a mortgage. You can actually hedge against the money market risk and potentially even the longevity and health span stuff. So when you're trying to make that decision, instead of going to a rad, you could actually fund it out of a mortgage redraw facility right to do the cheaper option that you were talking about in the podcast.
Alice Stolz 48:49
And I like the sound that the only thing I don't I worry about is again, people, not, I'm sorry to keep going back to people right, not right sizing, yeah, and people, people. It almost encourages people to stay in there, big house. Sick, yeah. Why would I sell my rambling, Edwardian house? When? If I think that's actually a great idea, but I just think I know if we promote it, you know, if see it
Andrew Boal 49:16
before as well, just that soon as something is a good idea, yeah, then watch the scammers come.
Alex Brooks 49:21
Yeah, we did talk about that, and they will, they will come. And the scammers could be the people that you're paying to care for you in your house, who you are also giving your ATM card to to buy your groceries, because you can no longer go to the supermarket on your own, right? So there's many risks. The world is full of them. The joy is where it becomes well worth it, and it's been really joyous talking to you. So thank you so much for coming on, like, subscribe and follow the midlife shift. The bell should be down below. Thank you. Alice Stoltz from domain and Andrew bowl superannuation, Guru, Deloitte, Guru, ask for guru. All the guruness of superannuation and risk. Thank you all you.