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Alex Brooks
So today we're talking the dollars and cents of financial retirement. How do you get money when work stops? I have money guru, Nicole, Pederson, McKinnon and retirement commentator Kaye Fallick here with us today to help us understand the dollars and cents of retirement money, I want to ask Nick first that you've said super should be called free money, because not a lot of us really understand what Superannuation is, and we might get our statements in the mail. But actually, you think if we just call it free money, people might pay more attention to it,
Nicole Pedersen McKinnon 3:01
or at least your fun fund. Do you know what I mean? I've got a massive brand in front of you. What were they thinking? You've got words like salary sacrifice. You know, concession non concessional. Division 296, division 293, what does it all mean? Literally, this is your future. This is your security. This is your success. And yet we sort of largely ignore it. We hope that sticking away in the background about busy lives, but it actually needs some love and care to get us
Alex Brooks 3:29
there, yeah, especially once you hit 50, right? Okay, so I think for most women are behind the eight ball with super just because we take time out of the workforce, we don't earn as much as men. I've seen a statistic that says we retire with 23% less total balances than men. And it's not just about your balance. It's about a whole range of different things, and hopefully that's what we're going to cover today. But I wanted to ask you, if your superannuation balance could talk to you, what do you think it would say?
Kaye Fallick 3:59
I think it would say, look at moi. I think I'm joined at the hip with Nick here that you can't just let it grow, which it does, because it's mandated. What you can do is love it, nurture it like the plant behind you, give it some water and some food and allow it to blossom. To do that, you need to read your statement. Apparently, 40% of us do not do that. We don't open it, let alone
Nicole 4:38
it's also similar kind of, you know, set and forget ostrich approach to who knows their mortgage interest rate?
Yeah, and it's almost as so we've delegated to our employer. Oh, well, they have to put it in by law, and therefore it's, it's their job, it's not it's your money. Whether it's your fund money or your security money, so important. So look at it, understand it.
Alex Brooks 5:07
And I do think funds are now realizing they need to make it a bit more engaging, and they're trying to come up with new ways to get people to at least look at their super balance and open their statement, which is a good start. But one of the other really key things which Nick has written for Sitra about is that you can sort of plug things in to the Money Smart calculators and so on, and just start getting an idea of what your super might mean for you in the future. And then you can tweak things and
Alex 5:34
what it means is income and doing the sums on how your super will become a retirement income stream really involves understanding compounding it and what inflation might
Alex 5:54
that's what the calculators are for. Hello, digital calculators. So you don't have to be a mathematician, but you do have to use
Nicole 6:03
absolutely I think it's about getting that wrapping your head around the fact that it's going to be a pay day. Yeah,
Alex Brooks 6:11
talk to me about that, though, and I know I've got questions leading us into this, because most of us understand this thing called pensions. Not a lot of people, according to some of the studies I've read, even understand that the age pension is still a thing in Australia. So a lot of people don't understand the interplay between the government Age Pension and a pension they might get from their super fund. Can you talk a little bit about that? Kay,
Kaye 6:34
sure. So right now, age over 67 which is age pension. Age 65% of people are on a full or part age pension. If you're on a full age pension as a single, it's about 29k if you're a couple, it's about 44 nearly 45,000 it's enough to exist on it's not a wildlife if you're renting, it's it's a problem. The other 35% are self funded, largely speaking. But as people go through retirement, by the time you reach your 80s, 80% are on an age pension because you're spending your super down,
Alex Brooks 7:24
which is what is planned to do,
Kaye 7:27
and therefore you will have this safety net, which is a pretty good safety net, when you look at the rest of the world. On top of that, you get a pension concession card that's worth between three and $5,000 a year, depending on medical and so
Speaker 4 7:47
on. And of course, that's why some people want to qualify even $1
Kaye 7:52
exactly to just go over there. And sometimes people do wild things like spending capital to qualify for again.
Alex Brooks 8:05
But interestingly, and this is a bit geeky, the pensions you can get from your superannuation, they differ as well, right? There's different types of income streams that you can get, and an expert I was talking to last week explained, if you want to buy an annuity type stream, which typically, on paper, looks like a terrible investment, right? Yeah, it looks, oh, why would I do that?
Kaye 8:30
Although that product is evolving rapidly and better
Alex Brooks 8:33
and better, and that's what I want to dive into, because your super turns into an income stream in some way, shape typically when you reach preservation age, which sounds like you're frozen, you're like your wrinkles will freeze and preserve forever from there on in but they don't. I was just
Nicole 8:50
thinking we should rename everything
performance
Alex Brooks 8:54
brand. You know who named everything like people from the ATO
accounts, actuaries. No one, no one with a female mindset.
Alex Brooks 9:06
Anyway, that might just be me. But the annuity streams are becoming more innovative, and the trick with them is you can often qualify for even $1 of the age pension. Yeah, you use them
Kaye 9:17
wisely. Well, they're tax favored, yeah, and we won't go into but they certainly can be used, and are often promoted to be used in combination with a small part age pension. So if it helps, maybe we can just think about the word pension, Age Pension government correct, then a retirement income stream from your super after you talk turn 60, but whenever it might be when you're 67, or older, which is normally an account based. Pension, which is you paying yourself from your savings, your super savings? Yeah, from from your super account, moving it from saving mode to spending mode. Which people think, Oh, I'm going wild. No, you're not. You're drawing down in a judicious fashion, yeah, enough money to probably top up an age pension. So it's combining a private and a public pension that sustains most retirements. Yeah.
Alex Brooks 10:36
And again, we touched on that super gap and Nick I know you've written quite a bit for Citro about some of this. Most people can barely even understand how what they spend in a year today. So trying to work out what you're going to spend when you're retired is actually a real mental leap. You're like, oh, I don't know. You know, we don't know what health insurance will cost. We don't know what our housing is going to cost. We don't know if our children might still be bleeding as dry like there's a whole bunch of things we don't yeah, there's a whole bunch of things we don't know. But can you talk to me about if women have, like, an average or below average balance for their age? And you can check this easily by searching online if you're in that situation, given that women are already behind the eight ball, what do you think most women should be looking at to try and live on once they retire. So there are
Nicole 11:23
some standards on this, which is good, because we need kind of a ballpark, and you can kind of think yourself whether they're applicable to you. Now, I do need to put the caveat in that they assume that you own your own home. That's right, you don't have rent. So that's you know, not only do you need enough money to live on, preferably in retirement, by retirement, you need a fully paid off home to live in. Those are dual goals, yeah, for that retirement age, that's that's the Holy Grail, right there. And so these standards that they produce say that a single person needs about $53,000 a year to live on. And a couple needs about $74,000 a year. So if you think about, if you took your your sort of housing payments out of the equation, would that cut the mustard? That's for a comfortable retirement. It's not lavish, is the idea. But, you know, there's, there's a little bit of travel, there's private health insurance, there's a little bit of shopping. You know, nothing wild, but it's a nice life. And you know, below that, it drops down to sort of a modest which is getting more to that age, pension age, which is, which is not where you want to aim. It's not where you want to target yourself.
Alex Brooks 12:34
Yeah, and I guess that's the interesting challenge with public policy, right? Is in the old days, you'd retire at 60 or 65 and you know, you don't need another couple of years, really. But the reality is now we're living a lot longer, and longevity is a much bigger factor in our planning. You could be
Kaye 12:52
retired 30 years. So, you know, it's a big issue. Yeah, to save a pot would have that what grow enough to sustain you? Yeah, in the, you know, in the lifestyle to which you you aspire.
Alex Brooks 13:04
And that as it's called the as for retirement standard. And you can google it online, and it does explain, there's actually the breakdown of, like, how much it budgets for haircuts, how much it budgets for housemates.
Nicole 13:16
It's literally a pharmacy cost, yeah, what's your streaming each week? Everything laid out for you to go, oh,
Alex Brooks 13:23
yeah, no, I need I spend more. I spend less. What's your view on what people should be aiming for?
Kaye 13:30
I'm not a fan of the standard. No, I'm not, because I don't like an assumption that you fully own your own home, and I know the numbers coming out of Rachel's research in WA show us people aged 55 to 59 half of them have a mortgage. Yeah, so preservation age is 60, and not everybody's going to retire then, because a lot of people love working. So, you know, some will. A lot more people are going into retirement with a mortgage. So currently, people are telling me 15 I think it's closer to 20% currently, and we're staring down the barrel of people having not paid off their mortgages. So for me, I'm not a fan of a standard that assumes that it's all cut and dried. On the home front, super consumers Australia have another standard. We
Alex Brooks 14:29
should talk about that because, yeah, their standard is a little bit more realistic in that you can decide whether you want to be I can't remember the exact terms, but it's basically, if you want to live a good lifestyle, there's three different levels, whereas ASPA only has comfortable and modest. And comfortable is not always really what a lot of people would say is comfortable, but super consumers is a little bit more flexy.
Kaye 14:53
Yeah, look, it's probably a bit more grounded in and I think it's. Probably helpful for people to look at both and think what suits where I'm at and how
Nicole 15:06
I'm going. Ultimately, it's such an individual thing. And the thing to realize as well is that the shape of your spending is going to change over that potential 30 years. That's right talking about so you might go a little crazy when you first retire, or the whatever. That you paint up to save you know diligently, but then you're going to probably start to spend less, and what's going to happen, possibly sadly and confrontingly, is your health costs are going to rise as you spend so the actual shape and what makes up your sense. Really interesting, not static. And asthma does have a post a desire standard as well, to kind of which is helpful, which, which adds another dose of realism, but I think to kind of play into your strengths. Nick, a lot of people don't know how much they spend now,
Kaye 15:59
yeah, yeah, yeah, you don't know what it costs you to live. And this is what I tend to come back to the whole time. I'm not sure you can even think about a retirement budget unless, and this isn't to say you must live on a really, no, that's right. This is saying you really do need to do the thing called going into the shed where the monster is. You need to download your debit card, your credit card, have a look at what you spent in the month. What's essential, what's nice to have, what's God, did I buy those shoes? And figure it out? That's how much I spend. Yeah. Now is sustainable,
Alex Brooks 16:44
yeah, and you're exactly right, but budgeting is another horrible word, right? I know you love it, Nicole,
Nicole 16:52
you know, I'm sorry, but no forward budget, you know, to your point, okay, like we struggle to budget now, do
you know what I mean?
Kaye 17:01
It's probably a good thing to broadly target because, of course, what we need to know then is what kind of like something gets there. That's
Alex Brooks 17:09
That's right, and that's where the calculators
ballpark it for you.
Kaye:
super funds, I think, are more supportive, not because they had the blinding light, but because the government requires them, through the retirement income covenant, to step up and provide more tools provide guidance is the word that's being and to help people understand the triggers that I think there's a trigger at 55 that tells us, where am I at? Where am I at? With my mortgage, how am I feeling?
Nicole 17:53
Say 50, I think there's a mental switch that goes off at age 50. Where you go? Oh, I can almost taste that
no. Taste I
Alex Brooks 18:04
know, but the dangers now, when I'm scrolling in on my socials or browsing online, there's every ad, and it might just be because of what I do with Citro that I get all these ads. Everyone's asking me to compare my super right? And they want me to just instantly go to some online form, enter my details, get a phone call back. And this is actually really alarming, because it's scam adjacent, right? Once people know that you've made that inquiry, they're like, Oh, hello, you've got money, yeah. And then they can put together other pieces to sort of find you
Kaye 18:36
and and it's not coming from a good place, because a lot of people will tell you when you've got a balance, I would say it shouldn't be as low as $300 400 or 500,000 in super people will come at you and say, go for a self managed
Alex 18:53
absolutely and which is a very big step, a self managed Super,
Kaye 18:57
big step. Costs money to establish costs money, to properly run it, to be a trustee, massive step,
Alex Brooks 19:08
but people just walk into it as though, I'll get better returns, and it's as simple as cthat yeah, and like, I absolutely agree with you. It's, it's the literacy around this. That's the problem. The products are all essentially fine in and of themselves. It's just not all of us really understand how that money becomes real in our world, day to day and self managed super funds, a lot of people can lose money, particularly when markets a bit Topsy Trumpy, like they've been
Nicole 19:40
well, because it allows you to 100% indulge your like investment personality, which in that situation is probably pure fear, unless this is the classic private investor mistake, yeah, selling at the bottom has become too much to handle and then buy back in the top at. Up because everyone's buying again. Now look, isn't the market a happy place to be? You've missed the recovery? Yeah, exactly, losses.
Alex Brooks 20:07
And that's what a lot of people don't necessarily understand about the gift of superannuation, which, again, should be just called free money, because it is a very tax sheltered way to earn an income after your salary stops, is really kind of what it is. It's absolute
Kaye 20:21
gold. Yeah, and let's say you're in one of the many retail or industry funds you are having your money managed by experts, correct and the returns, I had a quick look at Super ratings returns year to date, and they're sitting around 8%
Alex Brooks 20:45
pretty good.
Nicole 20:48
That's right, we've had a phenomenal rebound from the trust. I know well, it's not over yet. It's going to be a wild ride. But, you know, you don't even have to outsource your superannuition to experts. You can also just invest through your fund in index trackers
Alex Brooks 21:03
And can you explain what that means in real language?
Nicole 21:08
Yeah, so you're on the roller coaster. Yeah, right. You're on the roller coaster. There's no one trying to second guess and be better than that roller coaster. However, you are going to get the return to the market, and if you stay the course long term, those returns should be really good. And what you do by doing that is that you massively cut your fees. And we do know that fees are a big erode or an impediment to the returns that you're ultimately going to get. So there's a real kind of argument for core and satellite. It's called, which I guess makes sense, like that stable video portfolio, and then a bit of playing around the edges,
Alex Brooks 21:41
okay? And you've got, obviously have a decent enough balance to be able to do that, but you are in a
Nicole 21:47
collective investment. Yeah? Okay, I got these words. I know, you know that means that you're pulling your money with other people so you can do a lot more with less.
Alex Brooks 21:55
Yeah, that's right, and that's the gift of our whether we're in an industry or a retail fund, and that's just the fancy word for the brand name of your fund. Some of them are technically industry funds that came out of the Union for profit, which
Kaye 22:07
are retail, because anybody can buy correct
Alex Brooks 22:12
and we've got choice now, so we can move our super really easily. I think 30 years ago, before Super policy was set, you know, you were only ever with
Nicole 22:21
the fund. No, that's right. And now you know super tool website, which is a fantastic way just go through my go and it will bring up that the super fund is your returns. And you can choose, say, four
Alex Brooks 22:34
alternatives, yeah, and that's a much better option to do that than to click on one of the social media ads than to
Nicole 22:39
compare your super go directly to the source and do that, search yourself, not, yeah, totally
Kaye 22:47
underlying the idea of your money growing in Super. I think to to kind of pull it back, really to basics, is to remind ourselves if our money's in a retailer and industry Fund, which most people says you set your settings, you choose your settings. So if you don't, your fund will default. Choose, probably too balanced, but
Nicole 23:15
which means about 70 to 80% invested in gross assets. Yeah, the share market, just to
Kaye 23:21
clarify, yeah, yep. So that's your default. But let's say you, I don't know 51 And chances are, and we'll talk longevity, I'm sure, chances are, as a female, you can make it through to about 92 so you can start to have a look at where your default is and think, Well, you know what I think I could move to there, or part of what I'm doing, I can move and you're in control. So you've got the best investment people that Australia produce looking after it. But you're saying, Okay, guys, now work my
Alex Brooks 24:04
money harder. Yeah, so it's a bit like the equivalent of the way we might allocate our grocery budget each week. You can go to Woolies, you can go to Coles, you go to Aldi, you can go to your fresh fruit veg, or your Bucha. And the super funds actually let you decide which bits do I want, high growth. Do I want property? Do I want cash? Do I want and all these things don't really mean much in the tangible world of getting money, but you can actually have a lot more in the end, which is very tangible once you reach preservation age. And that's the bit that I think it's very hard to make the mental leap
Kaye 24:36
towards. But I think put your super fund on the spot. Ring them
up old fashioned, but why not? Most of them are good with that, right? A lot of them will give you a free appointment, and I ask dumb questions. Just say, What is my investment setting? I'm this old. They won't give you advice, so you don't want. Personalized advice, no, but they can talk broadly about where you're at, how long it's going to last, and the numbers that you need to educate yourself and become stronger.
Alex Brooks 25:11
Yeah, that's That's exactly right. Now I wanted to ask you, Kate, as you're here as a guest of household capital, and there's this thing we've got in Australia called very expensive homes, and it's the reason why, you know older people do have mortgages, is because our property market is the second most expensive in all the world. Only Hong Kong is more expensive. Yeah, well, isn't it? Yeah, it's kind of the question is, if you're not, if you're, if you're, it's widened the gap between the haves and have nots, right? So I guess my question is, what role does your own home play in your retirement planning? Because it's a big one.
Kaye 25:53
It's huge. So again, to bring it back, I talk about five pillars for retirement income. So we age pension will will underpin most people super will top it up beautifully. For most people who have even got a semi modest amount private savings are part of that picture. Some people won't have work. We forget. Many people work beyond retirement age, whatever that is, age pension. And that's a particular kind of aspect, and has a lot of rules, of course, but the home, the home, the home. So a median priced home is around the million mark. I used to quote 920 you live in Sydney.
Nicole 26:41
You made a bunch of people cry
Kaye 26:44
different universe in the cap cities, but median is nearly a million now, which is about four times what the median super is. So there's a comparison. If you have your home, you you have gold for retirement. But to be slightly more pragmatic in my life, it I'm being pragmatic not about money, but about our emotional needs for security, yeah, for caring for people as we age, as aged care comes on the horizon. 95% of us will take a home care package. That's right, I'll go into
Alex Brooks 27:32
residential. No one wants to go into residential. Aged no one willingly goes take me here.
Kaye 27:38
So, so if you've got a home and if you've got some super and if you're able to get your hands on your equity, if you haven't got spare cash, yeah, then you can retrofit your home and live there until, as many people do, there are 102 Yes, absolutely. So it's a good story.
Alex Brooks 27:59
It is a good story, but it's not for the people who are locked out, right? So people who, and I have many friends, girlfriends in this position, single parents, who've, you know, got no super. The Super was wiped out during COVID, for example, still don't own a property. Rents are now way higher. These people may have a tiny super balance, but what are they going to do? Is kind of the question, and one of the other scary stats around women being behind the Super Eight Ball is also that women in their 50s are the most at risk age group of being homeless. Like that scares all of us. It's a horrible statistic. Yeah. Well, it is, and that's why women need to really understand that interplay between super owning a home and so forth. Now, one of the things we did at Citro was we created a retirement locations Guide, which wasn't just about moving to swanky Noosa or, you know, Kiama or one of those, or Byron Bay, you know, one of those really expensive places, definitely had some of those locations in there. But it was also about finding really affordable locations which admittedly won't have the same infrastructure as a city, but if you retire with a balance of, say, 500,000 which is not out of the question once women are in their mid 60s, even if it's relatively low, you know, if you can find a property to buy as you flip to retirement, you will then qualify for the age pension and so on and so. Ning, I wanted to ask you a little bit about that, because you are like the mortgage guru. She loves being mortgage free, except when you're going into retirement and you reach the age of 50, talk about what a mortgage means to women in their 50s now,
Nicole 29:44
yeah, look, a mortgage is not necessarily a bad thing, and a lot of people striving to pay down that mortgage, having that money in the housing carries this benefit of meaning that you are much more able to qualify for the. Education, whereas, if you had that money instead of superannuation, that would be supporting your pension, right? So there, there is, you know, some advantages of that. Absolutely, having that roof paid off your over your head is a goal. Whether it's one that you are going to be able to achieve or not, it's one to strive for. But there is a problem though, with completely paying off a mortgage.
Alex Brooks 30:23
Yeah? Talk about that, because I don't think many people understand that.
Nicole 30:27
Here's a little wrinkle. So once you hit 50, you are going to really struggle to get a quote. Yeah, so while debt is bad, and I'm not going to ever say anything else, you might want to just keep it ticking away, if you can have it actually net, net, so the debt doesn't have anything owing, however, it's still
Alex Brooks 30:47
there in the bank as a redraw. So that's what you're talking about, because redraws
Nicole 30:51
are particularly nasty, and in an offset, an offset account that is beneficial with yours, that you have complete unfettered access to, that the bank can't freeze on you for a particular you know circumstance that they see fit which has happened so an offset account filled up, so essentially, you've got your loan paid off, right? I would recommend keeping it there and discharging that mortgage, because that's your full flexibility for any kind of life. I call it your holy shit fun when shit goes wrong, you know, it does people. It does just that money there so that this doesn't sort of derail your financial plan, your your well laid plans for this beautiful, comfortable retirement when you actually need $10,000 yes, you know, you've got a short phone and knee surgery that's really impeding your quality of life situation, that's
Alex Brooks 31:44
right. And I guess you are a massive advocate a for being mortgage free, but holding on to your mortgage so you've got the access to just in case. But you're also a massive advocate for private health insurance, which is an increasing cost, and you know, there's a lot of issues with it, but I guess I'd love for you to talk about why private health insurance is such an important expense to keep budgeting for.
Nicole 32:09
Yeah, I mean, it's a huge part. And you know, everyone's going through their finances with a raise right now because the cost of living, cost of living crisis has just been so acute. I would say that private health insurance is priceless, particularly as you age, because just by the nature of that, you're going to be calling on it more. Yeah, right. So the time to drop it is not when you've when you've paid all your premiums and not perhaps, had the benefit of that, you know, that didn't want to hold on and really get back in premiums. There's also ways to work the system, like, for example, I pay nothing effectively for my private health insurance because I claim so much on it. There's amazing work in the system. You know, make sure you you dial down that cover so that you're not paying for things that you don't need. Yeah, make sure you up your excess, which, again, is going to dial down the cost. Look at a co payment if you think you'd be able to, you know, cover like 50 bucks a night per hospital beaten health fund halfway or not even halfway, just a little bit of the way. It's all sorts of ways of cutting the cost, okay, and claim on every single penny you can. You know, your Cairo, your osteo, your physio, your exercise physiology supervised. There's all sorts of ways of getting that to pay for itself. And just think about
Alex Brooks 33:20
keeping, yeah, what's your feeling?
Kaye 33:23
Again, really supportive of that. I mean, what do we want in retirement or later life? Independence and choice. How do we keep independence? By keeping our health and okay, we're talking a lot about money, but physical health is, well, none of it matters if, if you're immobile at home and not having a good time. So for me, my private health insurance, which is expensive, my God. And then every year they seem to get a green light to put it
Kaye 34:07
too much. But mine pays for Pilates. Preventative health checks
Nicole 34:15
would be more agile for longer. And I guess the other thing to factor in, you know, when we're forecasting ahead to this. And people may be groaning about, oh, God, do I have to be paying premiums 60s and 70s. Don't forget that your need for your other insurances mostly completely disappears because your post retirement, so your life insurance, you probably want to just slick because you go superannuation anyway, your kids may be going to get something unless you spend it all you know, your income protection insurance, no, that goes to so all these other expenses that you've had, private health is the one to really value.
Alex Brooks 34:49
Yeah, I think that's a really interesting thing that we don't often talk about with retirement planning. Yeah, we just see it as an expensive cost, and we've got Medicare, but you don't want to be have a. Sore knee three years from
Nicole 35:03
surgery waiting lists, you know, knee replacement, and you can Google
Alex Brooks 35:05
them, right? You can Google these elective surgery waiting lists and be very afraid,
Kaye 35:12
which shows you the waiting time all around Australia, exactly. Maybe you move to one of the 10 top destinations.
Alex Brooks 35:18
That's exactly right. And that's this is part of retirement literacy, right? Is understanding all believers that you can pull for your individual wish, because retirement, I believe in financial retirement, but I don't believe many of us are just going to retire from life, right? We're not going to sit and play Lord balls like our grandparents did. Well, there's more to retirement than money. That's exactly right. But money is a necessity. You have to understand the balance. When you're earning a wage, it's just really easy to just spend it every week. All of us know that the more you earn, the more you spend.
Kaye 35:56
I think also the concept, which is probably quite an old one now, but you know that day of retirement, the gold Boy, this whatever, that moment, that turning point, and I think you know what the best training or planning for retirement is to work on having a really good Life now, that's right to use terminology close to yours. Get your shit together. Do you meditation now? Yeah, think about, you know, the giving and the volunteering. Don't wait till you've retired to start putting it together alive.
Nicole 36:40
Don't be defined by work. Yeah, that's a really dangerous thing, and it's certainly not the way to prepare yourself for when you move
Kaye 36:47
beyond work and then you can truly transition, because things have started, things are in motion, and you can roll along and do more of this and less of that. So there's, there's a very nice segue there. I think, rather than, Oh my god, I hate my job, I have to pay off my mortgage. I can't wait till I'm 62 that's, that's quite lurching from one
Alex Brooks 37:15
Yeah, to another. And if you and this has been why men typically don't retire well, because commonly it's men see themselves as a provider, and they're like, Oh, excellent, now I can retire. I can go fishing or whatever they've been dreaming of. But actually, there's no status. There's no yes and yeah, it's it is about more than that. It is about purpose and where we all want
Nicole 37:39
to go, purpose and personal connections, yeah, building that back up again, so that you have a framework for your weeks and the people to see that's exactly and the
Kaye 37:47
worst that will happen is she'll have a better life. Now, while you were aiming for, yeah, yeah, most
Alex Brooks 37:54
of us are too scared to do that, because if we have a mortgage, we think we've got to pay it off, or if we don't have enough, super we think we've got to contribute more, and there's this worry that we'll never have enough. But enough is also things like health and also things like purpose
Kaye 38:09
and enough. There is a safety net of an age pension, yeah, that's right. There is super that will layer on top of that. If you're lucky enough to have a house partly paid off, fully paid off, whatever you can get your hands on that exactly. There are these pieces that come together and
Alex Brooks 38:31
like so we did talk a little bit about account based pensions, age pensions, all those confusing, horrible terms, but there are a lot of new financial products now for people who do have a property. And I know Nick you wrote for Citro about this as well. Can you talk us through those things,
Kaye 38:47
talking about the reverse Yeah,
Alex Brooks 38:48
reverse mortgage, the housing equity access scheme, and there's others. New products are being developed all the time, right? That's
Nicole 38:56
right. So essentially, what these like you do is tap into the money that's tied up in your house, because there's no point living in, you know, rattling around in a big house, yeah, if you kind of want
Alex Brooks 39:06
to turn heat on it, yeah, that's
Nicole 39:08
right, yeah, you know. So there's all sorts of ways that you can actually tap into the equity in your house and still stay in your
Alex Brooks 39:14
house with maybe what you you choose and want to do exactly
Nicole 39:19
anyway. So, so these are things where you take out a mortgage, just like you would ordinarily, if you make no payments on that
Alex 39:25
mortgage, sounds like a dream.
Nicole 39:30
Yeah, that debt rolls up, of course, because you're adding to it each time that you don't make a repayment. That's right, you can repay it at any time you want. In the future, it will roll up and, I guess, start to swallow up some of the values right home. So there's absolutely inheritance considerations. Yeah, if you want to leave because you have to pay the debt when you're dead, when you're dead, you don't sell earlier than that. However, if your house is going like this, and you put a debt on it going like that, and that's also fun. Yeah, okay, there might be a margin there still to give your kids. And, you know, I would argue that they should want you to have a good
Alex Brooks 40:06
quality of life. And I'm sure most kids do and
Nicole 40:08
and, you know, one of the big reasons people take out reverse mortgages is to give money
Alex Brooks 40:12
to their kids. And this is another big issue with retirement planning now, right? Because, because our property prices are so expensive, if we have kids, the Bank of mum and dad is something ridiculous, like the biggest lender in country. And it makes more sense to get them into a property while you're still alive and to leave them something
Nicole 40:34
when you're dead. Yeah. I mean, we've got this, you know, 5 trillion plus intergenerational wealth transfer. That's right, that is happening in the next couple of decades, that is basically being brought forward because, you know, parents are watching their kids, right? They struggle with these house prices. And the
Alex Brooks 40:49
interesting thing about the intergenerational wealth issue, which again, is another horrible term, it's really waiting for your parents to die, is what that means. But women are actually going to be some of the big beneficiaries of intergenerational wealth, which is so rare, women are going to do better. The future is
Nicole 41:05
not bleak. The future is amazing,
Alex Brooks 41:07
exactly right. And, you know, women do live longer. And all these, all these other benefits that we have, we just need to sort of dial up the literacy, I think, around the planning and engaging with money, because most of us just want to spend it on fun things and not be thinking about what we might want to spend it on when we're, you know, 75 because
Nicole 41:27
you still be fun. I talk to my kids all the time about future, you you know, like they're little. So I use it in
Alex Brooks 41:34
do you really want to have
Nicole 41:37
brownie right now? Because, you know, thank you, future, you there'll be no brownie left. And my daughter says to me, she's all over this. She goes, I hate future. Me take things for now. Me adopt the mindset that works for you, but you do want some brownie left at the end.
Kaye 41:58
That's hilarious. So my daughter, age 36 living in London has an English letter called Future you, which is about self development. And that wasn't even a setup. And because she was 36 maybe she worked her way from where your daughter is maybe. So there's hope
Kaye 42:18
has turned so what would future you look like in retirement? Yeah, pardon me, I think it would be arming yourself with knowledge. Yeah, knowledge is always power and exactly and increasing your own literacy with tools that are available now, money, smart your columns, intro, whatever the information's there. I read it every week because I like to keep up to date, so we can all do that.
Nicole 42:52
Because the other thing to realise is that there are ways of getting extra money into super that don't cost a thing or don't cost you as much.
Alex Brooks 43:00
And can you talk about that? Because as we get to 50, and if we do have a below average balance, you've still got a lot of time to catch up, but it's a very confusing thing to embrace, even people like me who can read a spreadsheet go, Oh, that makes my brain hurt. Can you give us the rundown on how to boost
Nicole 43:19
your super you should be doing like, if you earn under about $62,000 a year, if you pay $1,000 to super after tax, yeah, the government will throw in 500 bucks for your trouble. Yeah, that's a 50% instant return, which is possible nowhere. Yeah, that's right. You should be doing that year after year. That's pretty much. That
Alex Brooks 43:40
is free money, but only for people who earn less than 62,000 than 62,000
Nicole 43:42
in a taxable That's right. Yes, that's right. You do have to be earning in some capacity to take that opportunity up as well. But then there's also the spouse contribution, if you are in a partnership, where they can put in $3,000 for you to, like, equalize the balances of perhaps a woman who's ready for children, yeah, that's right, more than a man who's been working, they can throw in that money and they will get a $540 tax offset. Now that is a straight tax discount for the family. And that's again, free money here, free money so that, you know, you do these things and you sort of start to make this virtuous super circle where you're topping it up for three or for less each and every year, and that's going to see your balance dramatically bigger every time,
Kaye 44:27
but also salary increases. You know, do you just take that money and go, oh, let's spend it, or do you make it salary
Nicole 44:38
sacrifice? The key message that's missing in this term salary sacrifice is it that's free money. What you do when you salary sacrifice is that you swap out your margin of tax rate, which might be as high with the Buttigieg 47% half your money, just handing it over, and you swap it for a 15% tax rate into. Renumeration. So by agreeing to that, you get a lot more in Super than you would get in your head future. You, yeah, that's, that's right, she's a happy person,
Alex Brooks 45:08
and she's getting free money, yeah, just through tax equalisation and a bit of, you know, understanding all these horrible words that none of us really like,
Kaye 45:18
you can because you don't have to be your own financial planner, because a financial planner needs to really understand tax law and fiduciary responsibilities. You can ring your super fund
Alex Brooks 45:37
again, the general
Kaye 45:38
advice, I think I understand what I'm doing, but I'm going to get a salary increase. What are the ways I can use that
Alex Brooks 45:49
generally? Yeah, and they will give
Kaye 45:51
you. And there you go. So it's scary out there, and I think enlisting the help of people who are being paid by
your fees. Yeah, that's right to help you. That's right, but
also using government websites and
Alex Brooks 46:07
systems. And there's another really great tool put out by Mercer. It's super complex, I think, yeah, I think you wrote something I did, yeah, and it's, it's like, the most layered retirement planning tool,
Nicole 46:21
yeah, you might be talking about those, those, you know, cookie cutter, one size, yes, or retirement spend. This thing lets you specify everything. It's
Alex Brooks 46:31
really, really, it's very granular, and you do have to geek out on it. And I wouldn't recommend going first to that calculator. I recommend going to Money Smart first to start getting your ball parks.
Kaye 46:41
So also for people, I think whether you're age 50 or 55 I think it's super important for you to understand, will you need? Will you be likely to get an age pension as you move in? That's retirement, or will you not? Free calculator company called retirement essentials. You punch in your numbers really good. You can see in a heartbeat, are you likely to get one or are you not do it? Yeah. And
Alex Brooks 47:16
there's another great retirement calculator I just came across this morning, and it was a how much has your being out of the workforce cost you?
Kaye 47:25
How much so on the industry super funds? There's a couple time out from Yeah, force
And again, for the female who's age 50 to 60. A lot of women take time out to care for older that
Unknown Speaker 47:45
which generation is real, tell me
Kaye 47:49
and and it's really important, not that I think people go, Well, I won't do that, but for them to start thinking about, Oh, that's a bit of a gap. How do I, how do I make that up? Yeah, if their partner, maybe that would talk about their husband, yeah, contributing to this? Yeah, no, I think
Alex Brooks 48:10
that's pretty fair. And
Nicole 48:11
don't forget that, you know where there are circumstances like that, where you do have the available cash, or perhaps where you sold an asset, that's right, you can put money into super with that 15% tax, that free kind of tax, discounted money, shelter some capital gains in there, so say tax on that as well. You can do that and mop up up to five years back allowances. And that's a really good opportunity too.
Alex Brooks 48:44
Yeah, it's, it's, where would you Google to try and work that out for yourself? Okay, what's the term
Nicole 48:51
you need? Non, sorry, concessional contributions. Yes. So right now, you could put in $137,500 into six. Into super before the end of this tax year, okay,
Alex Brooks 49:08
but the advantage of doing that, and just sort of what we need to explain, which is the Bucha super. If you put 137,000 into your super today, how does that make you much richer tomorrow? Can you explain
Nicole 49:19
the benefits of that? Well, you save a whole bunch of tax right now. Yeah, it helps you now, yeah, today, me, yeah. And also future you dramatically because, of course, the earlier you put money into super Yeah, the more if
Kaye 49:31
the returns last year were for pension funds around up to 13% and year to date, at the moment, they're looking about age, that's really good earning year on year, and that's another thing I think about when people get into retirement of past age preservation age, they've accessed their super by paying themselves a salary from their. Super savings. So it's moved into draw down mode, or spending mode. What I think a lot of people think, well, let's say they had 200,000 in Super Oh, I'm drawing down x per year, 20,000 a year. In 10 years, it'll be exhausted, it'll be gone, yeah? And they forget that that super continues to freeze, and the first year that drawn down, say 20, but there's 180 they're
growing, yeah. And I think
that's the magic of our super system. That's where it works really well, so we're not draining the swamp to use it. We were drawing down carefully on something that will continue to grow.
Alex Brooks 50:51
That's right. And the big bonuses, you get money for not working, like that's really super does, right? Gives you money
Kaye 50:59
to work income. So the bonus is on the work
Alex Brooks 51:04
the work test is really interesting now, because it's much more generous than it used to be. People used to get penalized if they worked and they were on a government age pension, but now the government's really trying to encourage that. There's still rules.
Kaye 51:16
It's it's better. So it's sitting at around 11, 812, 1000 a year before your age pension is affected. There's a group of people, myself included, who would take the income test out of the age pension means test and leave it as an assets test, because we keep saying we want older people in the workforce, the richness of their knowledge, you know, and then if they earn more than 12k we start reducing the first
Alex Brooks 51:49
incest incentive. Yeah, you're saying,
Kaye 51:53
Well, I would like to see work income expanded, income generally, that's up. But yeah, an enormous amount of people will continue to work. And it gets messy trying to figure out whether you've gone over this threshold or not all of its project work. So you might be Santa Claus for four weeks, and you learn too much in that it's so Centrelink is not your friend,
Alex Brooks 52:25
but Services Australia do actually have a free financial advice hotline that people can ring and
they do seminars, yeah, and that they're all free. So, you know, you don't have to pay for them. Why we were talking before about financial advice being a bit of a dirty word is that previous, you know, the previous incarnations of financial advice, many financial advisors exploited what was called trading commissions, and that's now a no, no, they're not allowed to do that anymore, and that's why Australians now have to pay for personalized financial advice, which is considerably expensive, if you realize It's three to 5k a year, and sometimes you might want to review that.
Kaye 53:04
Well, there's a range, but that's right there. There are companies who are charging 500 that's so that's really another awful term, episodic advice, but that's like a needs based advice. Do I pay off the mortgage or do I leave it in Super that's an arrangement where you can get good advice for a lower mate, the the 5k 6k thing is more a a kind of whole life plan. And you know what, if you're in retirement for 30 years, I think I'd rather touch base with the advice I need. As as you talked about your spending changes and your needs change and you can no longer live in your home. So that's an advice moment. And
Alex Brooks 53:52
the other thing I wanted to touch on was the downsizer bonus, which is another little handy piece of government voodoo. I know you've written about this, Nicole, so describe what that is and what that means for people. It's for people who own or
Nicole 54:06
have a partly paid off home. Yes, that's right. So really interesting opportunity only, like really new opportunity. So what you can do is you can sell a home that you've owned for 10 years at least, and you can shelter $300,000 of that, of those proceeds into your super fund. Now, if there's two owners of that home for $600,000 you know, of those into super fund. And of course, that means that you can access kind of, you know, you could start a pension stream. You can have tax free earnings. You can then draw that money tax free. There's all sorts of advantages to doing that. If it's time to kind of swap your home for something that is,
Alex Brooks 54:43
yeah, and let's talk about that transition to retirement piece, which used to be more generous than it is today. Maybe Kay, you can explain what this transition to retirement
Kaye 54:53
just to come back on down Sarsa, be aware if your assets are. Too high, you may not get a pension. So advice. You probably need to seek that. Interestingly, the
Nicole 55:10
family home is, of course, exempt from the house. Yes, guarding that into superannuation and where it won't be exact, yeah, if it's the government's rationale in doing this is to unlock the housing Yeah,
Kaye 55:23
yeah. And the research goes against the government's strong desire, because 85% of people, and this has come up time and time again, want to retire in their own home. That's right. Don't want to downsize. They don't want to move here or there or see change or whatever. They like their community, they like their local health care services, so they want to be where they are. Which takes us back to home equity, moving across to transition
Alex Brooks 55:59
these are just some of the you know, things that you can Google if you think they might be applicable to you. Right? Downsize a bonus is there transition to retirement. I know it used to be a lot more generous than it is today, but can you explain what that is and what that
Kaye 56:15
means? The thinking was a while back that we needed more older people in the workforce good. Therefore it was starting age 55 to allow people to access super before Super access age preservation, age and as long as they worked part time, at least they could get their hands on some super and now age preservation. Age, generally speaking, is 60. So it now applies to 60 to 64 year olds. I love the idea of transitioning as an emotional, practical tool to step I was thinking about this earlier today. A lot of us want to step back. A lot of us would like to step back up when we can. And this is flexible. Most of us don't want to step out forever. So this is a very flexible way of accessing super but you can still put money into it, which sounds a bit
Alex 57:23
crazy. It is a really perverse, weird thing around let's
Kaye 57:27
say you're working full time, and you're earning $80,000 and your daughter's had a baby, and you want to be a grandma. A lot of my friends are doing this thing right now, and you don't want to give up work, but you want to go back to three days, but you need five days work to live off so you can access your super you can do the part time thing and enjoy the life that you're aiming for now all bets are off when you're 65 because the rules change, and that particular strategy is not useful because it's changed. I think, Alex, again, you need the support of someone who really understands tax rules, like an advisor or your accountant to talk to that thing that's right, because there may be other ways that you're going to step back a little bit that's right, that are better
Alex Brooks 58:31
for you. And let's talk a little bit about the personal financial advice conundrum and the expense of it. And I'm pretty sure the market will shift and evolve over the next five years, we'll find some better solutions. But yeah, right now it is especially for women who are maybe as financially literate as other groups in society are. The whole idea of paying 1000s of dollars for something that isn't a shoe or handbag is like, why would I do that?
Alex 59:00
know, but I am one of those people. I'm like, why would I be paying this guy how much? And you don't understand that, actually, it's an investment, in the same way Buying a house is an investment.
Nicole 59:13
We've been talking about trailing commissions before. The fact of that it was hidden in the background, that's right, they would have amounted to far more than three or $5,000 correct. They were depressing your funds year after year, exactly right fees. So it is actually something that's well worthwhile doing, potentially. Yeah,
Kaye 59:36
I think there's a much greater range. In fact, I know there's a much greater range of advice right now, and some companies will use digital tools, that's right, and that's bringing the price down. Do you want whole of life advice? Talk to the person offering it and ask them what the value in it for you is given your savings. That's right. What was. Percentage of your savings.
Alex Brooks 1:00:01
And if they have what's called an AFSL, which is the Australian Financial Services license, they absolutely are obliged to not charge you more than they can deliver for you. And they
Kaye 1:00:11
haven't got one, don't talk. So that's a deal breaker. So I think, look women are coming off generations of perhaps not being feisty enough and saying, Hello, man in suit, what can you do for me? What will it cost me? What am I getting out of this conversation? And I would like to think we're raising daughters who just go, yeah, Jane, how does that work? How does that
Alex
work? Yeah, I think that's a really important point. Now we're going to move to my little two choices questions. This is where we go to wrap up. And I give each of you two choices, and you just tell me the one that you like. I'm going to start with you, Nick, I want to know what you think is more valuable time or money time,
Nicole 1:01:02
because time makes more money. 8th wonder of the world, compounding, okay,
Alex Brooks 1:01:13
spend it or saver. I
Alex Brooks 1:01:22
agree. Now, if you follow Nicole on Instagram, she does share all her saving tips, and they are very practical and useful, okay, risk taker or risk averse,
Nicole 1:01:35
risk averse, but targeting retirement, you do have to take a certain amount of risk because you do want that money to grow. Yeah, do you want invested in shares and in those growth assets?
Alex Brooks 1:01:43
Now? What about credit card or buy now? Pay Later. Oh God, credit card or Buy Now Pay Later card,
Nicole 1:01:48
which I know is probably really controversial and not what you expected me to say, but credit card pay off the balance in full every single month. Get the points and travel for free, and the free travel
Alex Brooks 1:01:58
insurance and in a partner, what matters more? Love or laughter? Oh,
Nicole 1:02:07
it's a really hard one. I don't know it's a really hard one. Well, money match is all this money match put it that way.
Alex Brooks 1:02:13
Oh, okay, money match and funny match, very good, okay, Kay, here comes yours, win lotto or win
Kaye 1:02:20
friends. Friends. Okay, easy. That was, yeah, luxury
Alex Brooks 1:02:24
holiday once a year, or a budget holiday four times a year.
Kaye 1:02:27
Two, budget, one. Luxury.
Us some money? Yeah,
Alex Brooks 1:02:35
a million dollars now, or $100,000
Kaye 1:02:37
a year for the rest of your life. Well, I'm planning on long life, so I'll go 100k
Alex Brooks 1:02:43
AU, exactly, and no debt, low assets, or some debt more assets. Some debt more assets. Okay, legacy for family, or lifestyle for self, love for family. I don't need some money.
Kaye 1:03:01
I don't like the word lifestyle. It sounds fake to me. Yeah? Love connection. Doing good work. Yeah,
Alex Brooks 1:03:10
exactly. I'm useful. That's great. So on that note, we're going to wrap up this conversation. Thank you, ladies, that's another episode of citrus midlife shift. Subscribe for more.