The Finance Bible

#90 Can You Afford the Retirement You Want? 💸

• Zeke Guenthroth and Oscar Don

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What if you could retire without financial worries, maintaining the lifestyle you love? On today's episode, we promise to equip you with the essential skills to calculate your net disposable income and set realistic retirement savings goals. You'll learn why understanding your post-tax and post-mortgage income is foundational for a secure retirement. We also walk you through a practical example for couples, illustrating how to project the income you'll need to live comfortably in your golden years. Don't wait until it's too late; start planning your financial future now.

Despite persistent economic concerns, many Australians remain hesitant to invest, often missing out on opportunities to build wealth. We'll discuss the resilience of the property market and why it shouldn't be overlooked as a viable investment strategy. Hear our take on overcoming fears and making smart financial decisions today to ensure a comfortable retirement tomorrow. Plus, we remind you that while we share valuable insights, personalised financial advice from professionals is essential for your unique situation. Don't forget to follow and subscribe for more actionable tips and enjoy the episode!

For any enquiries or to connect with Oscar, Zeke, or their company, Asset Road, listeners can visit the following links:

The advice shared on The Finance Bible is general in nature and does not consider your individual circumstances. The Finance Bible exists purely for educational / entertainment purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.

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Zeke Guenthroth:

Welcome back to another episode of the Finance Firewall podcast Zeke here and your co-host, Oscar.

Oscar Don:

But before we get into it, please note that nothing in this podcast should ever be considered as personal financial advice.

Zeke Guenthroth:

Of course, if that is what you are seeking, reach out. We'll get you in touch with the correct professionals. Get the job done properly. Sit back, relax and enjoy the show. Let's get into it.

Oscar Don:

Today we're going to be talking about quite an interesting topic and something which many Australians probably haven't thought about before. It's close to my heart, close to Zeke's heart, and the topic is how much money do you need in retirement to live your comfortable life? And when I say your comfortable life, everybody has their own amount which they think is comfortable for themselves. But what is it? Have you actually done the calculations? Do you know what you want to aim for in retirement? To live off the income that you want?

Zeke Guenthroth:

Yeah, it's an annoying topic, really Like it's a great one.

Oscar Don:

It's close to our heart. Sorry, just an industry super fund. I just popped up on the TV.

Zeke Guenthroth:

And they are doing the hand symbol right now. Good old CBUS. Yeah, no, it's an annoying topic to talk about because you never think about it. No one has thought about it until, like, there's a reason to think about it. If you know what I mean, and most of the time it's too late, that's exactly right.

Oscar Don:

Like they're coming up to their retirement age of, let's say, mid-50s and they're retiring in 10, 12 years and most of the time they might say a number and they're fully off it. There's no chance of actually hitting it now.

Zeke Guenthroth:

In school, you might get taught how to measure and count certain environment and ecosystems within a one square meter cube. You might get taught things like reading coordinates on a map both of which are completely useless nowadays but you do not get taught how to calculate and project what you need in retirement to be comfortable, and it's silly, in my opinion. Everyone needs money to live, everyone wants money to live, yeah, and we all have dreams, aspirations, goals, places.

Oscar Don:

We want to be things we want to do what we do when we sit down with clients and we ask them this question you know what does a comfortable lifestyle look for you in retirement? What would you like to live off in retirement in terms of a money, a dollar amount, that is? We calculate what's called a net disposable income first, so that gives an idea of currently what is their disposable income after your tax is taken into account. So, for example, if you're on $100,000, your tax on that's roughly around 24 grand give or take. So you take off the 24,000 and then what do you have left? Do you have a house? Are you making mortgage repayments? If so, you take off. However, per month and per year, your mortgage repayments are, and whatever is left over is basically your disposable income net. So for those that don't know, like a net income is basically the money that you're left with that you can spend, so not including the mortgage or your tax. It's pretty simple like that.

Zeke Guenthroth:

Yeah, you just take off tax because obviously you don't even get to spend that and mortgage is a fixed expense where you're not spending it monthly. Now that mortgage might exist in retirement you might need a plan for that. Sometimes that mortgage is paid off, so we don't actually include that in the calculation of net disposable income because you don't need to yeah, exactly right.

Oscar Don:

And if you're at home or on a bus or whatever you're doing listening to this, it's probably a good activity to actually try and get on your notes on your phone or write it down. Like, figure out your net disposable income and then, once you've figured out a number, think about your retirement. Like, let's say, my net disposable income is $80,000 after my tax and mortgage, for example, I ask myself, am I comfortable living day-to-day? If I am, yes, and then I ask myself, would I want more in retirement or would I be happy with this amount? That's the question you'd ask yourself. Because if you're happy with the amount you're on, most of the time, you will get a shock if you do your retirement planning and figure out that you are not on track for the amount of money you're on right now yeah, let's just say you're a couple and I mean do all your own calculations, do your own rates, figure out what you want to do.

Zeke Guenthroth:

But this is just an example of what is possible to give you an idea into. You know what could be used as a calculation to help you in retirement. So so if you've got a couple, they're both on 100 grand a year, which is fairly standard. Their tax might be leaving them with 150, 160 grand per year pending their deductions. After that they might pay 30 grand a year of their mortgage. So they might be left with, say, 120, 125 grand.

Zeke Guenthroth:

If they're saving $0 per year, you know they're going on holidays and whatever. They're doing this, that and the other. They're paying their private school fees, buying groceries, clothing, whatever. It doesn't matter where the money's going. But if they're not saving anything, then their net disposable income at the end of the day is that full $ or 130 grand, because they've got nothing else to show for it, right? So they're spending all of that. And you know if that's you in that scenario and you spend it all, are you comfortable right now? The answer normally is no. Everyone wants more money. So what you then need to figure out is okay. I actually need to generate post-tax, post-mortgage 120, 130 grand per year minimum in retirement to be comfortable between my partner and I. So how do you actually do that?

Oscar Don:

Yeah, and you got to take that backwards. So, generally speaking, let's use 100,000 for an example here. Let's say you want to live off 100,000 in retirement per year. We use 4% as a general rule of thumb, based on the average return on the ASX of dividends et cetera roughly 4%, and property historically averages around that 4% mark. For a rental year, do you know? Yeah, for renting. So 4% of $100,000 is $2.5 million. So what that means is you need to have an asset base, an income producing asset base. So I'm not talking about an owner-occupier home which doesn't actually produce any income for you. I'm talking about shares, investment properties, any other investments that pay you an income of an asset base of $2.5 million, because per year, based on 4%, that will be able to pay you that $100,000.

Zeke Guenthroth:

And that's without actually taking away from the balance. A lot of people out there will be going well, if I've got $2.5 million, why would I take 4% per year? Why wouldn't I just spend whatever I want to spend? Or I've got two and a half million, why don't I just go on a holiday and spend 150 grand? I can go tour the world for a year on that money. That's pretty good money, well, yeah. But if you do that every year for the next 20 years, you run out of money, yeah, and your retirement is going to be longer than 20 years, ideally. I mean, you might kick the bucket at 70, who knows?

Oscar Don:

it's quite a scary thing because when let's, for example, when we meet clients who are, you know, 50 and they want to retire in 10 years, realistically you're living to around 88, you know, lucky to go to 90s now. So you've got around 28 years of retirement post 60. So so your next 10 years, you're planning for the next 28 years. It's pretty scary when you think about it like that You've got 10 years to plan for 28 years of your life.

Zeke Guenthroth:

Yeah, and in that circumstance too, if you take more than the 4%, then you're actually drawing down that capital that's funding your life. If you maintain the 4% and again it's assuming your dividends are 4% or interest is 4% or rent is 4% there's an assumed calculation in this example but your capital is growing in value. So if you've got a property and it's paying you a 4% income and it's worth $2.5 million, so it's generating that $100K and you know tax implications we're not including in this because we're not giving any advice. But let's just say it was $50K going to two different people who were a couple. They had deductions on the property like depreciation, property management fees and that kind of thing, and the tax is pretty much negated.

Zeke Guenthroth:

Or if it's in the super, they might be under the threshold cap and it's negated anyway. So that property goes up in value. You just take the rent out of it. In 10 years' time that property might now be worth double the money $5 million. So it might be generating, at 4%, 200k year-on-year. So you actually increase year-on-year, whereas if the other way, you decrease year-on-year, so after 10 years you're running low.

Oscar Don:

After 20 years you're fully up. Yeah, it's a tough conversation because two and three Australians are worried that they're not going to have enough money to fund their own retirement. That is a ridiculous stat, especially in a country like Australia, when you've got everything right in front of you, you've got all the resources, you've got generally a good, solid income and a great country, a great economy, so the opportunities are right in front of you. How is that actually happening? One of the reasons is because the old school mentality of the pension and that it's all fine if I go on the pension and live off that. But realistically, if you're happy with around $20,000 per year, good luck to you. For myself, I couldn't live off $20,000 and I'd probably put a bit of money on it. That a lot of other people I know wouldn't be happy living off $20,000, and I'll probably put a bit of money on it. That a lot of other people I know wouldn't be happy living off $20,000 a year either.

Zeke Guenthroth:

Well, the funny thing is like two in three Aussies are worried about their retirement, right? So it's literally over 60%. That figure hasn't really changed over the last five years. Why is that? That percentage of people, that portion? They're worried about it five years ago. They're worried about it now. What have they done? What's changed? Nothing. So to get out of that and not be one of those statistics, you need to actually take the action and do something. Why, out there, would you settle for less than you can have? If you've got a potential to earn, you know, 200, 300, 400k per year in retirement, or even per year in 15 years? Why would you not try and do that, like, yeah, sure you might go, I don't need that much money. That's outrageous. Well, okay, try.

Oscar Don:

What's the?

Zeke Guenthroth:

problem in trying, even if you achieve half of it and you want $400,000,. $200,000 is great.

Oscar Don:

And even now it's become. It's so easy now to actually get your foot in the door and actually do it. Like the media, obviously, you get. All you see is the housing crisis. It's so hard for Australian young adults to now buy a house. But take it the other way, like, maybe buy an investment first. It's a much more affordable and a smarter way of doing it, in my opinion, of building your wealth over time and with so many different products, all you really need right now to get your foot in the door is as little as $50,000, which, yes, it is quite a bit of money. But if you've been saving for a while and you've been saving for a house deposit and you're probably five years off of getting that, well, this is an option for you. There's so many options out there options out there and then down the track. I'm pretty sure your 60 year old self, or whenever you decide to retire, will thank you for making a decision in your 20s 30s, 40s.

Zeke Guenthroth:

Yeah, I don't. I can see why, why the depression numbers are going up, because the news, as you just said, is just doom and gloom. 20 really, it's. It's quite on for a little bit the other day, just to suss it out, and I was like Jesus Christ, this is bad. I'd much prefer to do what I do not ever watch the news and cop the fine once every, however often, for not voting in my local election because I don't even know what's happening. Yeah, yeah, the news serves no purpose really, aside from mongering fear.

Oscar Don:

Well, yeah, it just puts fear in everyone. And then, like, especially with all the interest rate rises over the past 12, 18, 24 months, the news, the whole media have just been slamming that and putting fear in everyone's eyes and the cost of living crisis yes, things have gone up in price, but still like it kind of makes people use it as an excuse. There's been so many clients I've spoken to two years ago and they've been putting off an investment property purchase because the interest rates are too high yeah, well, it's down hundreds.

Zeke Guenthroth:

Yeah, well, there's another.

Oscar Don:

there's a couple other clients, for example, who actually purchased at the same time that those clients said no, and now they've already made $100,000, $150,000 from buying even when the rates were increasing. So there's always opportunity.

Zeke Guenthroth:

The thing is like what have we had in the last 24 years? We've had the GFC, we've had COVID, we've had Russia, ukraine, we've got Palestine, israelrael all this kind of stuff going on um elections, trump, love him or hate him, who cares um, you know, biden, trump again. Now you've had the attempted assassination, you've had all this stuff going on. And the property market since 2000, which has had all of those events, even 9-11, fits into that range, yeah, and it's returned 3.6 times since 2000. Ridiculous An average of 6.9% per year detached houses. So all of this fear-mongering. Meanwhile Per year, yeah, per year, 6.9%. That's outrageous. Meanwhile, inflation has been%. That's outrageous. Meanwhile, inflation has been going up as well. And your dollar was $100 back then. It's now $194 in terms of value. So whatever you could have bought for $100 back then now costs $194. Yeah.

Oscar Don:

And property seems to be the way to outgrow that like it's all. It's all well and fine to be saving money, but you've really got to like, if you continue to save for 20, 30 years, you're not really saving, like you're actually losing money yeah, imagine if I had a news story actually saying that statistic about detached houses I tell you what.

Zeke Guenthroth:

We'd be getting a lot of phone calls the next day maybe we should call up and make a tip, um, but no, like you, you actually think about that. I never thought of it the way I just said it. We've had all of those key events yeah, in the last 24 years bang it's. It's done that yeah.

Oscar Don:

So if you're on the fence because of things going on in the world and interest rates, etc. You've just got to make the leap. There's always going on in the world and interest rates, et cetera. You've just got to make the leap. There's always going to be something going on which is going to be a bit nerve-wracking or make you a bit scared to invest. But time is on your side, but it's also against you at the same time. You've only got a certain amount of years in your life. How do you want to be living them when you are older? Do you want to be still working until you're in your 80s, your 90s, because you can't really afford to actually pull out and retire? Or do you want to be traveling the world with your family, or even just chilling out at home and looking after your grandchildren if you have any or just doing whatever you want by yourself, because you have the freedom to do so?

Zeke Guenthroth:

That's another point to make. Back to the statistics of drawing down the rent or whatever while your balance goes up, as opposed to just drawing down whatever amount you want to spend per year. At the end of that, your kids have nothing. Your children have nothing. If you pass away, your partner has nothing. Your family, your generational wealth, your descendants are all left with absolutely nothing. So you've wasted however many years of your family's legacy and just got rid of it. So, going the other way and building things up, you get to leave stuff for your kids, you get to have that income where you can go and do things, and then your children get the opportunities that you're angry you did not get. And that's something that we see a lot of now clients who go well, I had nothing, you know. I've paid tax my whole life. I don't care about having assets, I want the pension.

Zeke Guenthroth:

You're shooting yourself in the foot to spite your face. You're literally ruining your life, ruining your whole children's lives. Not ruining them, but you're really costing them. Yeah, they're getting on the same start that you had, if not worse. As I just said, property's gone up 3.6 times in 24 years, so it's going to get harder and harder for the younger generation moving forward without help that you had, if not worse. As I just said, property has gone up 3.6 times in 24 years, so it's going to get harder and harder for the younger generation moving forward without help.

Zeke Guenthroth:

Generational wealth moving forward is going to be more important than ever More. Millionaires currently had nothing when they started. That's not generational wealth, but in the next 15, 20 years that's definitely going to change, I think, unless the people that are born with nothing just keep outworking those with it. But that's a story for another day. But yeah, you've worked your whole life. Do you want your kids to go through the same thing that you've gone through, just so that you can get the pension, which, mind you, is not a reward, it's a punishment. If you have to get the pension and you're is not a reward, it's a punishment. If you have to get the pension and you're living on? What is it?

Zeke Guenthroth:

45k per year for a couple I mean around 20 20 by yourself is that really something for you to walk around with pride saying, yeah, I got them, I taught them a lesson, I'm getting the pension I paid tax my whole life and they're giving it back now?

Oscar Don:

and it may not even be around in the future, like if you're in your um. Let's say, if you're 30 right now and you're not really wanting to invest or buy anything down the track and you're just wanting to go on the pension in 37 years, well, firstly, currently at 67, I wouldn't be surprised if that age keeps rolling back every few years and all of a sudden the government pulls some funding and then you'd literally be left with nothing.

Zeke Guenthroth:

And it's the same with tax. Actually, the amount of clients we meet that are like, oh, I don't want to get into property that's going to pay me because I don't want to pay tax, like if it's positively yielded and not brand new, doesn't have a good tax depreciation schedule or something. Or they don't want to pay tax Like if it's positively yielded and not brand new, doesn't have a good tax depreciation schedule or something. Or they don't want to invest in shares and get dividends. Or they don't want to put money in savings and get interest because they get taxed more. It's like again, you're shooting yourself in the foot and spite your face. Why would you go? Well, I just don't want the money because the tax man is going to get some. Would you not prefer go give me all the money I can and if he takes a cut, he takes a cut. You're better off earning more and giving a portion of it to a tax man. They're not earning anything like it's quite funny paying tax.

Oscar Don:

We were at lunch yesterday with um, a director of a company we work close with, and he made a good point. Paying a lot of tax is actually kind of a rewarding thing if you think of it in a different aspect, because the more tax you're paying, the more income you're making. So you may want to he told us to actually make a goal of how much tax you want to pay and strive to hit that goal and make it a higher amount, because the higher tax bill we're paying, more successful and the more set up you may be in terms of investment-wise down the track. So it's all about mindset as well, how you look at it.

Zeke Guenthroth:

Yeah, and by all means go and try to legally negate as much tax as you can. If you've got deductions, you've got deductions. But don't prevent yourself from making income and reaching your goals and reaching your full potential just so that you don't have to pay tax. What future does that give you? What future does that give your children? None.

Oscar Don:

Well, that's it. Tough pill to swallow. But look, if you listen to this and you've got all the way to the end and you're thinking you may be in one of these situations, you might want to figure out what you're on track for retirement or what you want to hit. Feel free to get in touch with us. We're more than happy to have an introductory discovery chat with you to map out a plan or see where you're on track for and to see if we can actually assist you as well. So feel free send us a DM, go on our website if you want to as well. But yeah, it's a tough conversation to have, but it's a conversation to have.

Zeke Guenthroth:

Yeah, that's exactly right. And if we can't help you, if you need proper calculations in some form of financial advice or anything like that, obviously we've got professionals that will assist you in that manner. But if you're looking for a general chat, you want to figure out what's going on, see what direction you should be headed in. We're happy to have a general discussion of that nature.

Oscar Don:

General General General general general.

Zeke Guenthroth:

Insert disclaimer before the outro music. But no, we're going to go enjoy Friday night. Have a few drinks and see Oscar's one of his favourite singers.

Oscar Don:

I was going to say your favourite, because this is why we're here.

Zeke Guenthroth:

And we'll just leave it at that. You guys can figure out who it is. It's the 30th of August, we're in Sydney, and that's it. Enjoy the day.

Oscar Don:

Zeke is very excited. Ciao. Please note that nothing in this podcast should ever be considered as personal financial advice.

Zeke Guenthroth:

Of course, if that is what you are seeking, reach out. We'll get you in touch with the correct professionals. Get the job done properly. We hope you enjoyed the episode. As always, you know exactly what to do.

Oscar Don:

Hit that follow button, subscribe whatever platform you listen to this podcast on. Also share it to friends, family, co-workers, whoever you think may benefit from it. But unfortunately it's the end and we'll see you next week.

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Oscar Don

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Zeke Guenthroth

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