Financial Strategies for a Secure Future After 60

In this episode of The Big 6-Oh, finance expert Blake Wendt from Pretzel Wealth delves into the critical importance of financial planning for those over 60. 

While many people might begin thinking about their financial future at this age, the best approach is to start planning much earlier. 

Addressing the reality that not everyone will have adequate superannuation by age 60, he offers actionable options plus discusses potential strategies such as extending work life or downsizing property to free up funds.

With longevity increasing, it’s vital to establish a solid financial foundation well before retirement.

* This episode of The Big 6-Oh! is proudly sponsored by www.louiscarr.com.au - helping people in the Hills District find their dream home since 1992.

Transcript

00:00

If you're old enough to remember when phones had cords and the only thing that went viral was a cold, then you're in the right place. Welcome to the Big Six-O with Kaylee Harris and Guy Rawlison. Because who better to discuss life's second act than two people who still think mature is a type of cheese?

00:36

Hey Kayleigh, how are you going? Hey Guy, how are you? Yeah, good. Hey, I've got a question for you. When you were a kid, did you used to get pocket money? I mean, did you have to earn it or did it just magically appear in your hand? I think I just got it when I asked for it. You know, like I didn't ask for pocket money, but if I said, hey, can I get some lunch money today? I generally got it. Or I'd get, you know, five cents for a tooth that fell out or something like that.

01:05

to take my warts away. Do you remember that old wives tale? So you get, you know, kids get warts on their knees and I, and they'd last for a couple of months or whatever. And grandma said, here's five cents, put it under your pillow, don't spend it. And I'll buy that wart off you. And I kid you not within two days the wart was gone. I do remember that. I do remember that. I really do now remember that, that you've brought it up. Yeah. My mum used to do it where she'd say, look, I'll buy that wart off you, whether wherever it was, but yeah. Wow. We should have been putting that five cents into super, you know.

01:35

Oh, look, what about your first job? I mean, your first real job. Do you remember what that was and how much you earned? I think the first real full-time job when I was about 16 or 17, I think about $76 for the week. And my dad said to me, you can blow the whole first week on whatever you want. But then after that, you got to put 10% away every week. And you know, I was 16 or something. So I went out and bought, you know, $50 worth of mixed lollies. And.

02:05

In fact, I'd probably still do that actually if I had a spare 50. But yeah, what about you? Oh, look, other than working at Maccas like most kids did when they were 15 or 16 and earning $2.65 an hour, princely sum back in the day, I remember my first paycheck. I was a cadet journalist. Oh, wow. And I was working over in Western Sydney. And

02:30

I thought I was the richest kid on the block because my first paycheck was $114 a week. I was driving a Datsun 180B, so I was paying $15 a week in fuel. Mum and dad made sure I was paying like 20 bucks a week in rent, but I still had like 70 bucks to play with during the week. And I thought, oh, how cool is this? It just seemed like such a lot of money, didn't it? It did. Way back in the day. And you look back now.

03:00

and you just wonder how you managed to get by, but we did. And I really don't remember what I blew all that money with. We certainly managed to blow up, but moving forward, we're as obviously in our sixties now and you work hard your entire life and you work so hard. And like a lot of people, we go through, you raise your children, you've got a mortgage and every spare cent's going towards that and towards the kids.

03:27

Um, and then like me, you get divorced and as a woman, you lose, you know, a lot of financially, you lose a lot. And as we're 60 now, are we working into our sixties and seventies maybe? Cause what's the age for the pension is at 67, I think you can't get it for now. So this is, I thought we would bring in a friend of mine, a lovely friend of mine. Blake went, Blake is from Pretzel wealth. Blake, g'day. G'day, Kayleigh and Guy. What a pleasure it is to be here.

03:56

Thank you so much for your time. I wanted to get you on to have a chat about the importance of thinking about your money when you get to 60 or is that wrong? Should we be thinking about it long before that and particularly given that we're going to be living longer now? Yeah, certainly. So the best time to start is whenever you're thinking about finance, it's best to start early. It gives you the longest runway.

04:24

towards saving and building up a nest egg for retirement. So we don't necessarily want to get to 60 years of age and think, okay, now's the time to start or start thinking about my retirement, because we should have done the hard yards years before. Now, of course, you know, when you get to 60, it's sort of a, we'll call it a magical period of time where you've sort of got the kids out of the house. Hopefully the debt's paid off, hopefully. And now it's a case of saying, okay, well, how do I structure things for

04:53

retirement, how do I make sure that my living expenses are going to be met? How do I make sure that I do have enough money behind me to be able to get, get through now in terms of starting out, I'd say start as soon as you can. We don't want to leave things to the last minute, but of course, debt and children certainly are things that probably take a high priority in many, many of our lives. We want to make sure that they're looked after and we've got a roof over our heads. So when we get to 60, there are certainly some things that we could be doing.

05:23

because as a rule, would you say Blake that Aussies, and I'll use an analogy, it might be a bad one, but if we were to look at it and say, this is like a 60 lap race, we spend the first 50 laps maintaining the car, keeping things steady, you know, but as we approach those final laps and the check and play, we start to think, oh, hang on, we're supposed to win this. We're supposed to be able to have a comfortable retirement. So.

05:49

Do way too many people wait too long for that final dash to the finish line or, or, or is it better to pace ourselves and then, you know, have that mad dash at the end? Yeah. I think pace is best in this situation. So particularly when we are talking about funding retirement and saying, okay, how do we save for a comfortable retirement? I mean, the classic example is a 20 year olds, if they invest say $400 a month for 40 years, they're going to get to a million dollars when they get to 60.

06:19

Someone who's 50 and they're wanting to save to a million dollars by the time that they're 60, and they're going to have to save roughly five to five and a half thousand dollars per month. So the pressure to be able to save, if we sort of put that in, in the final stages of our working lives will be a challenging period for most. Okay. So what about if we get to 60 and we don't have any super, what are the people have no super at all? What options do they have?

06:49

Do you see that frequently?

06:52

Yeah. So not as frequently as what we would going back in time. Super, there's certainly some super floating around, maybe for the self-employed individual, they may not have chosen to focus on super too much. They're focused on keeping cashflow in the business or keeping the business up and running. Um, so small business owners certainly are a part of the cohort who aren't necessarily into super or too much. They're focused on their businesses. Um,

07:20

But there are options, you know, you get to 60 and you're saying, well, how do I fund retirement? What can I do? Often you're going to be forced to work for a period of time until you get some age pension. So that may result in you having to work up until 67 years of age. Alternatively, if you've got a roof over your head, maybe downsizing is the solution, sell the home, buy something cheaper and use the difference between the two to be able to fund.

07:50

living costs. So at 60, you've got this choice. If you don't have the super or the finances behind you, maybe it's a case of extending how much time you are staying in the workforce. So if you are say a sole trader, and we all know that being an older worker or more mature worker these days, your longevity in the workforce has been diminished for whatever reason.

08:14

those that may be in their fifties now may be finding that they're having to employ their own skills, which are transportable into the workplace. So if say they've neglected their super, are they cruel? What's their position? Right. So, yeah, so what we'd want to be doing is making sure that they're adding to super building up a balance and getting some, uh, some money into that environment. Of course, that comes with the caveat that you, you have paid off some debt. We don't necessarily want to get into retirement with some debt.

08:44

especially on the principal place of residence. Maybe their focus is on investment properties and there's some debt there. We can say, well, that's perfectly fine as long as the cashflow allows for it. But if you're in your 50s and you are thinking, okay, I need to build up my nest egg for retirement, Super is a terrific vehicle. You should start as soon as you've got the means to be able to do this. What we don't wanna see, I suppose, is someone in their 50s who have just paid off their mortgage, the kids are, maybe they're going through university now

09:14

perhaps they're still in high school, but cashflow has improved because the debt has been taken care of. We don't wanna see them get into the habit of using that mortgage repayment that they've been paying a month on month, year after year, suddenly saying, well, that's now for holiday spending, or that's now suddenly a trip down to the shops because why not, we can afford it. We need to apply or keep the habit of putting money away. It was in the mortgage, now it perhaps is into super.

09:44

So there's certain habits that we need to be mindful of or certain points in our lives which you probably just need to be just giving ourselves a little tap on the shoulder just to say perhaps let's put some more money away particularly if there is no super balance. Going back to the 70s when you'd be taken down to the Commonwealth Bank and your parents would open a bank account for you and you'd get a little grey passbook and you'd get a little gold building money box thing.

10:12

and we'd all put our money away. More broadly, at what age do you think we should be encouraging kids or our grandchildren to start saving? Or should we, can we be putting money away for them? Yeah, certainly. Yeah, so you can put money away for children. There are, I don't know if Commonwealth banks still offers the Dolomites accounts that kids could have, but certainly there are child-friendly accounts that the banks offer. Because we're getting into a...

10:41

I suppose a more digital age, there are more digital applications in which kids can access money. So, you know, there are phone apps that they can use to be able to make purchases or to understand what's going on with their bank balances. And so it's become less of a, I suppose it's become less of a physical, you know, you put your 50 cents in the coin jar. But is that a bad thing? Do you think like you could, if you, the thing about having a piggy bank?

11:07

was you could see it and shake it and then save up and felt real. Yeah, it felt real. There's something good about that compared to digital money. I think you're right. I think it has lost its feel. So it certainly is. It sort of moved, you know, going back in time, you used to get paid, you know, you've paid in cash, or you used to get your your pay stub and or your check and go to the bank and get your money out or go to the paymaster and get paid. And now you sort of just find that the money's in your accounts, you can go and spend it.

11:36

So I think the feel of money or the understanding of how much something costs in real terms, in terms of, you know, I've physically had to pay for this has been diminished with the movement into digital currency. So it's certainly, it's changed consumer behavior. I think the fact that you don't feel the spending is going to be interesting to see what happens in future generations, of course. The other thing that I'm op some gobsmacked about is

12:03

You'll hear advisors say, Oh, look, you'll, you'll need a million dollars in retirement with everyone living longer as well. A million dollars today sounds that's fantastic. But is that, is that reality is it is a million dollars today? If we're all living to be 90, all of a sudden you're thinking, well, that's a million bucks I'm going to have to put away in for the next 30 years. Like it sounds good on the surface. Well, it's really, it really comes back to what you need or what you spend.

12:31

So everyone's comfort is different. You might find that your comfort is, happy to have a bottle of red wine and watch a movie on the couch. That's your Friday night special. It might be that you go out to a restaurant and spend X amount of dollars on dinner. It might be you go to the local fish and chip shop, whatever your comfort is, that's your comfort. So it's very hard to put a framework around what someone needs in retirement because it is personal.

13:00

But if you're following what the government says is a comfortable standard of living, which is roughly $6,000 a month for a couple, a homeowner, and that's deemed to be comfortable by the government, great. To support that, you probably need around $800,000 of assets to be able to support that throughout retirement and to have some money left over at the end to perhaps help with

13:27

perhaps pay for a few bills along the way, a new car or a trip overseas every now and then. So there's, there's different, I suppose, different levels of comfort. You've got to identify what your comfort looks like and then work backwards to say, well, I need this pool of funds to be able to get me through retirement. So again, personal, very personal, a million dollars might work for someone. It may not work for the next person. Rupert Murdoch, maybe. Maybe not.

13:56

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14:12

Blake, so how much did you get paid at your first job? Because you're considerably younger than we are. I was at McDonald's actually, and I think I got paid $4.50 an hour as a 13 year old. Yeah, 13 and nine months. I think I was at that stage or 14, call it. 14, nine months here in New South Wales. Yeah, Guy and I were both at McDonald's as well. And I think it's a really good grounding for kids. If you've got that on your CV as a 16, 17 year old, the Macca structure really helps you move ahead, I think.

14:42

I think so. It teaches you systems and it teaches you there's a way to do something. So you've got to follow the system in order to get the outcome. So I think it's a terrific starting point for anyone thinking about sending the kids or the grandkids to start something. McDonald's could be the answer. But yeah, I think it was $4.50 an hour I was getting paid going back in time. Wow. Yeah. And you think about that. And I did one shift a week.

15:06

And that was a three or a four hour shift and, um, can do the maths on that. Uh, it wasn't a lot of money. That was good fun. It was always good fun. I remember the Mac is that I worked at, we hated getting dining room duty cause that meant, cause the teenagers had come in and they'd pull the pickle off the burger and they'd throw them up on the roof and they'd stick to the roof. And so if you're on dining room duty, your job was to get a broom and try and get them off the roof. I hated those kids. Yeah. Yeah, sorry. Just in case you're wondering.

15:36

Kayleigh and I worked at the same store, so I can relate. But not at the same time. Not at the same time. Yeah. Something I might ask you, Blake, and this is something I'm not aware of, but I hear people talking about it. What's the 4% rule or it might be the three or the 5% rule. What, what is that? Right. So when someone talks about 4%, they're usually talking about accessing their super, setting up an income stream. And so the 4% amount is when you get to 60.

16:03

Between the ages of 60 and 65, you need to draw out 4% of your superannuation balance as a minimum drawdown requirement. When you get to 65, that becomes 5%, 75 becomes 6% and so forth. So that's the minimum that's required. Now, if you start a transition to retirement income stream where you haven't yet finished up with work, but you wanna have access to funds, that gives you access between 4 and 10%.

16:32

of your super balance. If you cease an employment arrangement or you're retired at 60 years of age and you'll then have full access to your super, so you can start an account based pension, that gives you access to all of your money sitting in super if you wanted to. And so the 4% comes from what's required in order to satisfy the requirements of a pension account. Now, the question I suppose most of us are saying, well, if I'm working, I don't really need.

17:02

the income or I don't need to access my super, I'd just ask you to rethink that because it could be useful that you access some super, pay off some debt, access some super, put it back into super and claim tax deductions. It could be that you free up some cash flow. So that way you go from five days of work down to three days of work. There's a lot you can do. So I don't want people to disregard accessing the super simply because they have to draw down 4%. We can always get that money back into super.

17:31

up until age seventy-five. So there's a few things that we could be looking at there. The four percent really relates to how much you're forced to to bring out of super. Just a more broadly Blake think very broadly. What is the one major mistake people make with money during their whole lives? Mm. That's a good question. Spend too much. I mean obviously not putting it into super is probably there but it's it's something that

17:59

most people do and don't realize is credit card debt? I don't know. Yeah, I think it's wealth creep or income creep. I'm not too sure about the specific definition of it or the name, but through our lives, we start off at a certain income level. So we start at McDonald's and we earn X dollars per hour. And it's very small. So we can't spend much, but then we get a new job. Suddenly our income opens up. Okay. Let's find things to buy. Then you get another job. Income goes up. Let's find more things to fill.

18:28

or to spend money on. So I think it's the not really having the foresight or possibly the discipline to put some extra money away, the extra income that you're earning, perhaps getting that away and tucking that away. I think it's letting your income dictate your spending. I think that's truly what sets us up for finding it difficult to save because once we're in the habit of spending a certain amount, it's very hard to sort of change your lifestyle backwards. It's easy for it to creep up

18:57

for you to spend more, but I think getting into the habit of spending what you earn, I think that's probably the biggest mistake most of us make. If you had some advice, say Blake, as far as older investors are concerned, who are maybe trying to balance that financial security with that desire to enjoy retirement savings, what advice would you give? Well, I think you've got to identify how much risk you're willing to take with investments. Now when we talk about risk, we're talking about if the market...

19:26

or your share portfolio could be within super, could be outside. If that was to come down in value, how comfortable would you be? And you can sort of lay that out and have that discussion with people to get that feeling of, you know, where do they call it quits? Where do they call it a day? When are they saying, well, that's far too much money gone. I'm going to get out. Now, trying to find the balance.

19:50

Once you identify how someone will react to certain outcomes, you can then put together how much exposure they may have to shares, how much exposure they might have to property or maybe on the defensive side, bonds, term deposits and cash. Now I think it really comes down to the individual. The thing that the superannuation funds are trying to do at the moment is move someone from an aggressive portfolio younger in life into a more defensive portfolio later in life.

20:21

Now that is logically, well, it's quite logical. It makes perfect sense. You want to protect money through retirement. I completely understand that. However, it ignores the fact that maybe that individual later on may want to take on more risks. Maybe they're more comfortable. Maybe their financial position allows them. They've got a good buffer of cash in the bank to afford them the ability to ride out some of these waves. So I suppose there's, there's looking at the makeup of your portfolio. There's also.

20:50

looking at assets that are more defensive in nature or provide more certainty, such as an annuity. An annuity is simply you putting money into the investment scheme. They pay you a monthly income from that. No matter what happens, rain, hail or shine, you're getting your payments. Sort of like the age pension, I suppose. There's income coming through. It's regular and you've got certainty.

21:18

Now there can be some benefits also with annuities and the age pension. You might put money into a lifetime annuity, you get paid for the rest of your life an income stream. And on top of that, those monies, a portion of those monies are shielded from central links and asset test rules when you apply for the age pension. So there's many things you can be doing to try to create certainty, but it really starts with the individual. How much risk are you comfortable taking? Or can you sleep well at night knowing that your portfolio is moving up and down?

21:48

That's sort of some of the questions to think about, well and truly as you are getting into retirement. It's quite a crucial period to get right, because you're at the end of your working career. It's how do you recover from a shock? So we need to create some degree of certainty. Blake, just finally, we're at that stage now where our parents...

22:11

be passing away and leaving large sums of inheritance to us in our sixties if it hasn't happened to you already. What's your advice to people our age who may be coming into some money like that at this age? I'd firstly start with talking to mum and dad. Finding out how they're going to distribute the assets. So a good example is mum and dad might have a place that they live in and then an investment property. And if it's just yourself and another sibling.

22:41

What I commonly see is mum and dad leave one property to one child and the other property to another child. Now the principal place of residence that they have lived in all their lives perhaps it goes to one child there's potentially no tax if that gets sold. The other property if it was purchased after September 1985 there may be some capital gains tax. Their properties could be the same value, could be identical properties that they inherit, but one child gets

23:09

left behind, I suppose, with some of the tax that has to be paid. Flip that around. Now you're saying, okay, I've received some money from mum and dad and quite a good inheritance. You should be thinking, have I cleared all my debts? Could I allocate some of these funds into superannuation to try to boost my balance and structure my affairs for retirement? Or are you receiving the age pension?

23:38

at the moment, so you're above 67, you've got the age pension you've inherited. Is there something I can be doing to try to improve my age pension entitlement or avoid losing the age pension? So buying annuities might be a solution. So I think there's certainly things to be done. It's important to get advice around this. Well and truly, if you've got debt at that stage, maybe look at clearing that. It could be putting money into an offset account where you've still got access to the funds, but you're not paying any interest. There's plenty.

24:07

plenty to be done, but again, it's personal. So it's down to the individual, it's down to where they are in life. Do they need cashflow? Do they need capital growth? What is it that we're trying to achieve? But certainly some considerations to be thinking of, and it's great that mom and dad can leave something behind for you, but just make sure you're getting advice and not sending it away, not giving it to the kids, not, you know, get some advice first. Blake, where can people contact you if they would like to get some more advice from you?

24:37

or just reach out and have a conversation. Best way to get in touch is to go to the website, pretzelwealth.com.au and there's a contact us page there and more than happy to have a chat with anyone. Fantastic, well thank you so much for your time. Thank you. Kayleigh, Blake, I've got to go, that piggy bank that's sitting outside. Someone just smashed it. Well, I've got to put the hammer away now. I'm informed, I'm educated. That's easy. Good, thanks again, Blake. Thanks, Blake. Thanks again, bye now.

25:06

The views and opinions expressed on the Big Six O are personal and reflect those of the hosts and guests. They do not represent the views or positions of any affiliated organisations or companies. This podcast is intended for informational and entertainment purposes only and should not be construed as professional advice. Please consult with a qualified professional for guidance on any personal matters. Ah, and before we go, let's give credit where credit is due.

25:33

Kaylee Harris and I came up with all the genius content for this week's episode. Our producer, Nick Abood, well he keeps the lights on and makes sure we don't accidentally upload a cat video instead of a podcast. So thanks for keeping us on track Nick. Nick?