Property Hub - Investment Insights & Inspiration - Get Invested: 5 critical retirement warning signs with Louise Bedford

Starting point is 00:00:00 Welcome to Get Invested on the Property Hub podcast channel, the leading weekly show for Australians who want to learn how to unlock their full self, health and wealth potential. I'm your host, Bushy Martin, and each week I go deep with the best investors, experts, leaders and founders to find out what it takes to break free from the grind, discover freedom and to live by design. Subscribe now and join me and get invested in the life that you really want. Let's get started. Hi, Freedom Fighters. Welcome to a very special episode of Get Invested, where fellow long-term friend and highly acclaimed investment educator, author, and very successful equities investor

Starting point is 00:00:41 Louise Bedford and I join forces to wake you up and shake you up to the five critical warning signs that you won't have enough to retire. Jump in and enjoy the episode. bushy martin welcome to the talking trading show how are things absolutely brilliant and in in a pretty special episode for both of us today louise where we're talking to both your audience and the get invested audience i'm really excited about what we're going to be talking about today look me too because at the moment i think there is a lot of pain a lot of pain people are seeing their retirement goals just drift away and they're not able to move because they're a deer in the headlights. So I want to fix that once and for all, Bushy. We're going to talk about the five

Starting point is 00:01:32 critical warning signs that suggest that you're not going to have enough to retire on. And most importantly, what can you do about it? So early action is good action. Now, Bushy, what are your thoughts when I say that topic? Well, I think a good starting point is to wake everyone up to what we're looking at. Because according to the most recent ABS stats, Louise, 73% of retirees over the age of 65 are surviving on an average of just $15,300 a year. Now that's $295 a week. I don't know about you, but that doesn't even cover our weekly grocery bill. And I think it's actually why so many hardworking Aussies are actually misguided in their thinking that just paying off the home loan and then putting their hard earned into super is going to give them any

Starting point is 00:02:22 form of lifestyle long term. Because if that's all they're doing, they're likely to be joining the penny pinching ranks of the 73% that we just spoke about. So we certainly want to get away from that. And some people might be thinking, yeah, well, that's fine. But if worse comes to worse, we can rely on the age pension, which is about $35,000 a year for a couple. So I don't have too much to worry about. But as you and I both know, given the income and asset testing that's associated with both of those, that disappears very quickly. In fact, I actually heard Alan Kohler and James Kirby on the Money Cafe suggest recently that if you're in the no man's land with a super balanced retirement of around 600 grand, you'd be better

Starting point is 00:03:03 off having no superannuation at all in order to access the full pension. So some pretty interesting exercises and there's a whole bunch of warning signs that you and I are going to share and that solution. So let's get into it, shall we? Absolutely. Look, I think the first warning sign is dependence on a single income source. So that is one of the biggest things, fouling up your retirement plans. By expecting just one income source to be able to cover your entire lifestyle goals, you've got another thing coming. And look, I want to delve into some of the stats on this because it's really important that people understand what is happening with wages at the moment. So these are the wages of Australians, and this is a very reputable source, of course,

Starting point is 00:03:51 being the ABS. Now, we wonder why we're having trouble, frankly, when we are having 2024, 2025 prices, but we're living on 2009 wages. That is the actual fact. That is what has been happening because wages have been rising, but they haven't been rising as fast as inflation. Inflation is biting us. Everything you want to buy is more expensive and it is becoming more and more difficult. I think that when you have a look at the stats as well, when you look at the family income to afford a home. If we just take Sydney, for example, because that gives us a good basis, we can't cover every single state, but it's about $280,000 income. But the actual income that people are having come into their household is only $120,000. So that shortfall, they're suffering.

Starting point is 00:04:49 They're suffering because of that shortfall. And if we have a look at the time that it's it's usually taking to save for a house deposit, it is 11 years, 11 years to save for an actual deposit, let alone when you have that shortfall because you're only bringing in 120 and you really need to be bringing in 280. So that's why as well when you look at it, often when you've got the working father and mother in the household and they're still unable to afford the things they want it's because of that shortfall and because $120,000 a year per person is a significant amount to bring in and even then with both working in the couple situation it is still a shortfall because it's only 240 when in actual fact it needs to be 280,000 people are bringing in. So it is very

Starting point is 00:05:49 multi-dimensional and it has a ripple effect into everybody's lives. And when we look at the actual rank with where we are, Sydney ranks as the second most unaffordable city in the entire world, bushy, the entire world. And if you're in another place other than Sydney, maybe you're in Melbourne, look, even if you're in Adelaide, we are in the top 10 of the most unaffordable places to live. Perth and Brisbane are not far behind. So I do think we really need to consider what's happening out there. There is pain out there. People are suffering. And it is something that I'm personally noticing more and more with my friends. So it is something that is significant. And even if you are in a rural situation, because I know a lot of people in a rural situation think that

Starting point is 00:06:46 they are so much better than the people in Sydney, Melbourne and Adelaide, we know that rural prices have been following these trends as well. So there is very little hope with that if you only have one income source coming in and you are relying on that one income source to give you everything that you need as a family to get ahead. Now, Bushy, I was shocked when I did a bit of research into, I mean, a lot of research into this show to see those figures where that shortfall is ever present. No wonder there is a worldwide screaming out from Australians at the moment saying it is hard. It is because it is hard. We're doing it tough and we are doing it tougher than a lot of the other parts of the world. So being able to diversify right now to pull in income from not

Starting point is 00:07:39 only your job, not only your business, but through property and the share market is so essential. I'd love to hear your thoughts on that, Bushy. 100% agree, Louise. I'm contingently scared by the almost the head in the sand approach that a lot of Aussies are taking to this. I think there's that sort of Australian dream that if we just keep doing what we do, it's all going to come out okay. But you and I know that that's not the solution, that we actually need to be getting proactively invested in our own futures. And super is not going to be enough to do it, as I'll talk about in a bit more detail shortly. So if we are not taking the opportunity and taking on board a little bit of delayed status to make sure that

Starting point is 00:08:26 we are investing in our future to secure our family's security down the track, then the future is actually looking very bleak and pretty scary, Lois. That's it. So number one is dependence on a single income source. And Bushy, you're going to tell us a little bit more about insufficient retirement savings, which is number two. So tell us a little bit about that. Yes. Well, again, this is one of those exercises where people just are thinking about today and they're not thinking enough about where the future is heading in this regard. And as I open at the top of the show and with the slide you've got up now, the scary stats are that 73%, so that's effectively three out of four Aussies over the age of 65 are surviving on an average of $295

Starting point is 00:09:15 dollars a week. Now, most of this is because many Aussies mistakenly assume that just paying off the home loan and relying on employer contribution to super is going to be sufficient to maintain and sustain their lifestyle long term. But I want to test this because everyone's going to be in for a big shock if they rely on that approach. Because if you actually want to enjoy a comfortable lifestyle when you stop work, that includes things like an annual overseas holiday, enjoying frequent leisure activity, eating out at regular restaurants, driving a decent car, enjoying some great bottled wine like you and I did, wearing decent clothes, living in a nice home that you can actually afford to maintain, along with access to private health insurance to protect you

Starting point is 00:09:57 as we all get older, then a couple's going to need a minimum of about $120,000 a year to survive on once they stop work, assuming that they've actually paid off their home. Now, this is a lot higher than the modest lifestyle income of about $80,000 a year that's suggested by the Association of Superannuation Funds of Australia, or ASFA, which actually, I think, restricts life after work to things like holidays being just a couple of short breaks near where you live, only being able to infrequently head out to restaurants where there's cheap food available, relying on cask wine, Louise, and... No, no, no, Bushy. Not good enough. No, mate. Having no budget for home improvements and not even scope for actually running an air conditioner, which is pretty scary at those sort of numbers, Louise. Now, I don't know about you, but that

Starting point is 00:10:47 sounds a bit more like a restricted prison style lifestyle, a bit akin to the old example of a few years ago that doesn't sound like a life of fun and freedom to me. So important to get our heads around that. And ASFA also assumes, by the way, that you only live until you're 85 and that you actually start spending your hard-earned nest egg to fund your retirement in what becomes a bit of a negative income death spiral, because the more you spend, the less you have, the lower your income gets, which I think is a really scary proposition, as the federal government's intergenerational report, or the IGR that it's referred to, actually indicates that life expectancy at birth is actually projected to increase for females to 96.6 years by the year

Starting point is 00:11:31 2055. And good old males are a bit downtrodden. We only get to about 95.1 years over the same period, Louise. But interestingly enough, the IGR is also predicting over 40,000 centenarians by the year 2055. Now, this all means that we need to accumulate enough income-producing assets over and above the family home by the time that we want to stop work to then fund our ongoing lifestyle for another 30 to 35 years or more. So are we actually going to outlive our retirement savings? Because it's important to note that both the 120 odd grand a year comfortable lifestyle income, as well as ASFA's $80,000 a year modest lifestyle, both assume that you've actually paid off your home by the time you retire. But, and I know you're going to expand on this later,

Starting point is 00:12:22 according to recent stats, more than 54% of retirees and older workers, so one out of two, still have a mortgage debt when they want to stop work. And the ABS figures confirm that the average age of those retiring is now actually extended out to 64 compared to just under 55 for those that actually retired 20 years ago. So hardworking Aussies are actually being forced to work longer in an attempt to pay off their debt. And there's also a very concerning and increasing trend of limited super balances being used to pay out home loans, which is going to further restrict retirement lifestyle. So it's sounding more and more like that old quote, Louise, that you'll have enough to retire about five years after you die, which I think is starting to ring

Starting point is 00:13:06 true. And I guess to be able to live comfortably on that $120,000 a year in today's dollars when you stop work, you're going to need to create an income-reducing nest egg of about $2.4 million based on a fairly conservative 5% return. So let's have a look at how super balances are comparing based on what you need versus how they currently sit. So if we're looking at the slide there, you can see that relying on the super to fund your post-work lifestyle, then your super balance at retirement at the age of 60 based on long-term rates of return and then taking inflation into account again which you'll talk about later on that means that at 30 you're going to need superannuation of 550 grand at 40 950 grand right through to 55 of 1.9 million dollars

Starting point is 00:13:58 now if we actually do a reality check on that and look at what the current levels are according to canstar and apra then we're miles short of that to the tune of hundreds of thousands of dollars below what's going to need to actually make that happen. So it's pretty clear to all of us that our super is miles short of where we actually need to be to live a comfortable lifestyle when we stop work. And the interesting thing as well, if we have a look at what the combined men and women super balance is at the moment, at age 60, it's averaging about 284 grand, then that's going to fund a stop work lifestyle of just $14,200 a year if you're basing it on that 5% net return and you're not spending the principal. Because as you and I both know, once you start spending the

Starting point is 00:14:46 principal, you're going to end up with nothing very quickly. So again, I can hear people saying, well, that's all right because I can fall back on the old age pension if things get tough, which is about 35 grand a year. But as I've already mentioned, the income and assets test choose away that very quickly. In fact, you've only got to be earning more than $9,672 a year before the income starts to get chopped away from the pension. That's 50 cents for every dollar you earn above that. And from an asset perspective, outside of your family home, if your financial assets are in excess of 470 grand, then for every $3 above that, you lose $1,000 above that level. So a pretty average combination, which means that it's no surprise that you end up in a situation where most Australians who don't invest and rely on paying off the home and sticking money to super are really struggling in a sort of penny-pinching poverty, really, as we currently stand.

Starting point is 00:15:44 So what do we need to do about it? It's pretty obvious. You need to get invested now, and you need to focus on high growth, low risk, and affordable income-producing assets like equities and property. that's going to be able to build your nest egg and become what I like to call a blend investor, Louise, like you and I, where we actually create a blended investment portfolio that combines super cash equities and property to fund a comfortable lifestyle long-term by going for growth and then converting to cashflow so that we can actually join the ranks of the successful investors who actually enjoyed their version of financial freedom. Because I don't know about you, but I'm

Starting point is 00:16:21 hell-bent on helping people to avoid what I call the oh shit super moment. When a lot of Aussies are getting to their mid-50s, they suddenly realize that, oh shit, my super's not going to be enough. Yep, it's got nowhere, not going to touch the size of the lifestyle they need, and they're forced to then survive on a diet of toast and two-minute noodles or keep working until they drop and face the fact that they're probably going to have to save and invest for at least another 15 to 20 years until they can actually afford to stop work. But very interesting position we're in as far as that goes. So really clear that most Australians' current retirement savings aren't going to be anywhere near the mark. But now over to you, Louise, to open our eyes and

Starting point is 00:17:04 ears to the next retirement shortfall warning sign. Yes, absolutely. Look, Bushy, the thing that I think is interesting about those stats is that the earlier you start, the better. So every year, that difference, every decade, that difference widens up between what is actual and what is required in order to fund that retirement lifestyle. So I think you're right. we do need to get our heads completely clear with this understand that every moment counts no matter how old we are so that we can take aversive action then because look even if let's just say you're looking at your children right now and they're really little okay now I love the thought of you being an incredible grandchild to those children where if they need it you can fund their

Starting point is 00:18:06 schooling. You can take them overseas. If they want a really great wedding, you can fund that wedding. It's not just for ourselves. It's also for the people that we love and the people that we care for. So I think it's bigger than just us. And look, one of the things that I think is a really big warning sign about whether you're going to have enough to retire on is to really look at your own debt levels because high debt levels can totally foul up your retirement plans. Now, this is something that is a situation where it is part emotional, but it is also significant in terms of what the reality is. So even if you're looking to delay your retirement or work part time, think about generating sources of income that can be a form of cash flow, because cash flow

Starting point is 00:19:04 can make all the difference. And it's also from an intellectual point of view, it's important that we keep our minds totally available in terms of novelty, such as learning a musical instrument and having novel experiences, which can include overseas experiences to stave off dementia and Alzheimer's. There are definite things that we can do from a health perspective because our health costs, which we will discuss in just a moment, are going up. Now, if you're carrying substantial debt into retirement, that can really deplete your savings because of the interest you're going to be charged. And your income being reduced at the same time, covering those essential living essentials, that is a key. So I do think that is something we need to look at. The financial

Starting point is 00:19:52 instability caused by significant debt can undermine your long-term retirement security. So you need a strategic plan. You need to look to get rid of debt in some way. Even to minimize debt is so important. That is where a financial planner can help. Now, it is beyond the realm of what we can cover on our podcast, Bushy, but seeking out help from mentors and professionals to assist you with that because that is something that can really be undermining. And it's especially concerning because as you say, we are living longer. We have got a bright future ahead of us with longevity, which does tend to jeopardize our lifestyle. It'd be nice to know how much we're needed so that the day that we die, all the money runs out, but we don't have a crystal ball. So we

Starting point is 00:20:45 have to plan ahead and we do have to plan for a longer life cycle than our parents actually experienced. So addressing debt proactively as soon as you can is so important. I think that is a real key. Now, I know, Bushy, you've got a lot to say about this next warning sign, which is lack of an investment strategy. We pretty much fought over this for a topic to cover. I want to hear your views. An investment strategy is so important. A lot of you know that Bushy's involved more in property and I'm more involved in the stock market. So it does add to some lively and robust conversations about how is this going? How is that going? But just know that we both have this spread into both vehicles. It is important that you do consider that we're not in competition.

Starting point is 00:21:35 This is an and situation, not an or situation. So I would love to hear from you about the next warning sign, which is lack of an investment strategy, Bushy. 100%. Before I do that, Louise, given that we've also got a very strong finance breaking arm in behind the know-how team, one thing I just want to mention is that, yes, elimination of debt is an absolute fundamental in what needs to happen, but don't be scared of leveraging debt to access growth assets that will, over time, enable you to eliminate that debt. Because one of the things that I constantly hear, and you probably hear it too, is, well, once I pay off my home loan, then I'll start investing. Now, if you're missing out on anywhere between 10 and 30 years before you

Starting point is 00:22:25 actually start, as you mentioned before, the earlier you start and the longer investment horizon you have, the easier this actually gets. The big mistake and probably the misnomer that people have around this exercise, if we actually structure your investments appropriately and we leverage good debt versus bad debt so that we're using debt that's fully tax deductible, so that's improving our tax credit position. It's really interesting. I've done case studies on this all the time. If you invest in equities or property and you use the dividends or the rental income and the tax credits that come from that poured into an offset account against a non-deductible home loan, you've got the ability potentially to pay it off in a third of the time

Starting point is 00:23:13 and save yourself tens of thousands of dollars in interest. In fact, over $100,000 of interest, depending on the level of your mortgage, of course. But I just want to mention that because it almost feels contrarian to be actually taking on debt to get rid of debt. But if you actually structure your investment portfolio correctly, that's exactly what you end up doing. You'll end up with freehold possession of your home far earlier than what you would if you're just trying to pay it off using your hard-earned cash, and you'll save yourself hundreds of thousands of dollars in debt repayments as a result of that. It doesn't have to be strategic. It has to be strategic. And it's something that in general terms, the average family is not equipped to be

Starting point is 00:23:58 able to do themselves. They need to have somebody from the outside shine a light into their blind spots so that they can see, all right, so these are the ways that I can do it. Because you're busy with your job, with your career. It's something that it's very difficult to be an expert in every single area. So I do think this is where getting good advice is very significant. And as a team sport, I think, Louise, it's an elite team sport. And I use the old analogy, if you were trying to win a game of AFL, you wouldn't rock up yourself and try and play the Cindy Swans. You'd get flogged within an inch of your life. But if you own the team, so you're not even a player as an investor but you manage your managers by making sure each and every one of the

Starting point is 00:24:46 individual professionals is playing according to your strategy and kicking the goals you need to do them then you can get on investing your time and energy and friends family and things are important to you while your investment team is helping to make it happen for you and secure that long-term lifestyle income so but it all comes back to that that favorite word strategy Louise, which I want to get into because it's an exercise that's very near and dear to both of our hearts. And in my experience, I think a well-developed, documented and integrated investment strategy that actually evolves over time and is then very regularly reviewed is actually mission critical to achieving your version of financial freedom and then

Starting point is 00:25:28 funding your long-term lifestyle. Because let's face it, if you don't know where you want to end up in terms of how you want to live, then sadly, like a lot of Australians, you end up being at the mercy and the whim of every next new shiny investment thing and you end up chopping and changing and actually end up going broke slowly rather than getting focused on what your end game looks like and then using all of your available capacity to invest consistently over the long term because sustainable investment, from my own personal experience, is a 15 to 20 year journey at least if you want to do it safely, easily, and affordably. But sadly, very few hardworking Aussies or even investors spend much, if any time, crafting a property

Starting point is 00:26:13 strategy that is actually called strategy. It's really only a bunch of short-term tactics to buy shares or property. It's not related back to what are your investments looking to achieve for you as a lifestyle exercise long-term. So in that context, I think strategy needs to take what we call a strategy. It's a bit of a play on words, and it needs to incorporate three fundamental interlinked components that inform each other. So we have to start with lifestyle. And what that's really about is working out what do you want to do in terms of the way you want to live, and then what do you need to do to achieve that? So when we work with clients a bit like yourself, Louise, we start by developing their freedom numbers, which I'm going to do a quick case

Starting point is 00:26:59 study on in a minute but once we've worked that out we then need to look at okay well that's what we want to do and that's what we need to do but what can we do based on our finance position and capability and that's really about working out what the boundaries are on your capability but it's also looking at what are you comfortable doing because the risk side of the equation needs to come in and this is where we do what we call a bare facts assessment which I'll which I'll touch on in a minute because if we get the lifestyle component right and the finance component right then the investment strategy falls out of those two because it's a little bit like the lifestyle being the end destination our finance capability and our ability to save and invest is the fuel

Starting point is 00:27:41 that's going to power the engine and our investments are the vehicle that are actually going to get us there so it's a pretty simple way of doing that and where we want to start of course is to then actually have a look at a bit of a case study because it's important to remember that your overarching three-part strategy is much more like a GBS than a roadmap because your goals and investment conditions, they're going to actually constantly change over time.

Starting point is 00:28:10 And it's really important to check in on where you're at every year and quarter to recalibrate your GPS and adjust as necessary to ensure that you're still on track to your version of financial freedom. So let's share a quick case study example of a typical Aussie family. And I'm going to call them Jessica and Michael Jones for anonymity's sake. Pretty typical family. They're in their early forties. Their combined income is about 250 odd grand a year. They've got reasonable assets.

Starting point is 00:28:42 They've got some super, they've got some shares, they've got some money in offset savings and a home and they've got a couple of kids, credit card and a home loan. So pretty typical situation. Where we need to start though is with asking the right questions. And this is the question that we always ask people when they start to look at investment is, how do you want to live and how much is enough for you? It's got nothing to do with property. It's got nothing to do with shares. It's all about what does the end game look like for them? So getting clear on your why, they use your vision and then getting right down to what is your perfect day week and month and year look like because it's very easy to monetize that and once we know how much that costs per year

Starting point is 00:29:27 it's then very easy to work out what sort of a income reducing nest egg do we need to create over your timeline to make that happen so again nothing sexy about this it's pretty pretty common sense but i don't know about you louise but i see very few people taking the time to do it um the key things that we want to start thinking about is what's my break-free timeline so how long and how many years before i want to be in position where i don't have to work anymore i'm not saying don't work because you and i both still work because we get the fulfillment of helping others to invest in their futures and i need passion and purpose to keep going but to be in a position where you don't have to work and therefore have the peace of mind to do what you want when you want

Starting point is 00:30:15 is like gold. So that break-free timeline is important. Also, as we've just mentioned, how much per year do you actually need to survive comfortably? Now, in this case, with Michael and his partner, 200 grand a year is what they're aiming at. And they're in a position based on their current situation where they're happy to contribute about 400 bucks a week up to 500 bucks a week towards their investment future. Now, what we then do is we start to calibrate your freedom number. So if you just bring up the next slide in relation to that, where we like to start with this is if you do nothing differently, where are you going to end up? Because if what you're doing is going to get you where you need to be, then you don't need to

Starting point is 00:30:58 invest. But as we've already spoken about, very few hardworking guys are going to be in that position. So using the example we've got here, Michael's earning 75 grand part-time, Jessica's an engineer, she's earning 195 grand. 20 grand is the lifestyle income they're looking to produce. 15 years is the timeframe that they want to be in that position. That means based on a 5% return, they need to accumulate a $4 million income producing asset base at that point in time. And if we look at their current assets and based on long-term average growth rates and taking inflation out of the equation based on where they're currently at, then if they do nothing differently and given that they in 15 years time they're going to be too young to access their

Starting point is 00:31:43 super which is another thing a lot of people don't think about enough is we we can't access our super until we're 60 above depending on our preservation age so if we're going to fund our lifestyle before that we've got to do that with assets totally outside of super and in this case with michael and jessica they're going to end up with only 110 grand in assets outside of their current position they do nothing differently and at a five percent return that's going to give them a princely sum of five thousand six hundred bucks a year to survival oh living the high life pretty scary exercise if they can access their super so if they they wait 19 years until we're 60 and they can actually access their super you can see that that that has a fair impact because they've then

Starting point is 00:32:29 got access to the super and their accumulated nesting is a bit over nearly 1.2 million which at 5% return is going to give them 58 grand a year to survive on. But still, that's a long way short of the $200,000 that they are looking to secure. So if we jump to the third version, then what that's telling us is that in 15 years' time, when they can't access their super, they're going to be about 3.9 mil short of that 4 million total, which if we take inflation off that figure, Louise and bring it back to what does it mean in today's dollars right here now then they're about 1.8 mil short of where they need to be so what is that saying to them they need to go out and invest in shares and property to the value of 1.8 million dollars today if they're going to achieve their

Starting point is 00:33:23 goal of of $200,000 in lifestyle income in 15 years time so so a bit of a wake-up call as far as that goes. So $200,000 lifestyle income, a nest egg number is 4 million. We've got 15 years that they want to be in that position. If they do nothing differently, 5.6K is what they're going to survive on. The gap in 15 years time is 3.9 million, but in today's dollars, that's 1.8 million that they need to invest in now. So now that we know what you want to do and what you need to do, we need to determine what you can do and what you're comfortable doing, which is where the finance capability strategy comes into play. So if we look at the second circle and the Borromean circle there, a bit like the Olympic interlocking circles, the finance piece of what

Starting point is 00:34:11 you can do and what you're comfortable doing relies on what we call the bear facts. And again, bear facts, as in the grizzly bear, boils down to four key things. How much can you borrow? How much equity do you have in terms of cold hard cash savings and or available equity in existing property or other assets? How affordable is that going to be once we look at the true cost of holding that investment exercise long-term? What risk management have you put in place in terms of investment buffers, the trading float, the position sizing, risk insurances, et cetera? And all of those inform the investment purchase power that you have to bring to the table. So if we combine your freedom numbers with the bare facts assessment,

Starting point is 00:34:57 suddenly you've got some real clarity on what you want to do but what you can do and more importantly what you're comfortable doing as far as your ongoing investment strategy is concerned so those two once we've got the lifestyle and the finance pieces completed we jump to the next slide again Louise those two are now going to inform what our investment strategy needs to be in terms of what type of investment in what sort of structure that's actually going to get us to where we actually want to be. And for most investors, you'd have this discussion all the time. It's that balance between, it's much more polarized in the property front because you're getting investors that are hell-bent on cashflow and others that are hell-bent on growth. I think

Starting point is 00:35:40 it's a nonsense argument, just quietly, because if we jump to the next slide, the easiest way to frame this is very simply by plotting where you're at on what I call the capital growth to cashflow curve. And what that means very simply is if your projected nest egg is going to end up below where it needs to be, in this case, we talked about the 4 million for Michael and Jessica. If it's projected below, you've got to focus on high growth assets. They need to be affordable. So we need to structure them carefully so that it's not burning a massive hole in your pocket while you are investing so you can sustain the distance. Conversely, if it's projected to be above your nest egg number, then your ongoing investments needs to be cashflow focused. And depending on

Starting point is 00:36:25 where that lands, that starts to determine what sort of asset and in what sort of configuration that you need to start investing in. I won't go into a lot of detail on that today because that's a topic for another time. But the takeaway message from all of that is that most Australians are in the growth accumulation phase. So they need to be focusing pretty strongly on high growth assets. And you and I both know that equities and property are very strong performers in that regard, but it's not static either. Once we get to the point where we're going to stop work, we're going to rationalize that portfolio and convert our high growth assets into tax effective cashflow income streams. So what it means is that's not a set and forget portfolio. So in my case, Louise, and probably similarly to yourself, I started very heavily in the equities markets.

Starting point is 00:37:17 I actually day traded for a period, and thanks to your great books, that put me in a really good place to do that effectively. I then leveraged the growth potential of property to add some properties to our portfolio, and that combination got us to our nest egg level, And for the last four years now, we've actually been rationalizing that portfolio and converting it into more effective cash flow assets like equities that are more dividend focused, but also commercial property that's giving us a much, much higher yield. So I guess what I'm suggesting there is, again, I'm recommending that like Louise and I, you become a blend investor where you go for growth and then you convert to cash flow. In Jessica and Michael's case, given the case that we're talking about, they need to invest in very safe, affordable, high growth assets to achieve those goals. And that comes down to a good quality equities and property. So that's where I wanted to get to as far as that goes.

Starting point is 00:38:21 but I'd love your thoughts because there is a little bit of difference between the property investment strategy and the equity strategy. I'm sure you've got some really useful points to add to that conversation. Well, look, Bushy, I'm loving what you've got here because there are so many similarities with what I do with my traders, especially in my mentor program, where we look to help people trade every market over every timeframe, but where it's their own trading plan. So some of the key similarities are work out your objectives first and have an accurate self-assessment as to where you are currently. So what we're looking to do is find out where you are now, looking to see where you want to be, seeing what is in your way in terms

Starting point is 00:39:11 of the barriers and what can we do to bridge that gap. Now, when Butti's talking about equities, it may not just be equities. I would even suggest if you're not quite familiar with the way the stock market works, investigate ETFs. Now, ETFs is something that it's an exchange-traded fund. It's a basket of shares that compiles into something that looks like an index. Now, one of the simple ways that you can get involved in the stock market is to be able to see, is Australia outperforming the US? If it is, get an Australian ETF. If the US is outperforming the Australian market, then get an American-based ETS. Now that combination of shares in that nice little package means that you've got something that has a spread into a lot of different

Starting point is 00:39:59 instruments. So instantly you're diversified. And also because of the survivorship bias, only the ones that are excelling in that market stay in. All of the dogs get dumped out. So there is an upward bias with every index to continue going up in value and you can be dragged along with that. So even though Bushy's are talking about the stock market and I'm talking about the share market and we're talking about equities, please broaden out your mind because there's more to it and there are ways to mitigate your risk doing some very simple strategies that I can show you how to do. So I'm loving it, Bushy, loving where you're at with all of this. Now let's look at another critical warning sign, which is ignoring inflation and healthcare costs. Because

Starting point is 00:40:46 this is something that I think people are not taking seriously enough. We kind of guessed that who we are now will be down the track who we're going to be tomorrow. And actually, they've shown in some amazing studies where they put filters on people and they age them up so that they look 10 years, 20 years older, if you've seen that image of yourself, you actually make better financial decisions in the current time because all of a sudden that older person is actually the same as you, which is quite interesting. So let's not forget that we are going to dump our future self in it if we don't get this right. Now, I want to have a look at some of the figures at the moment. Now, the Aussie economy has been going through a terrible time and in the last 10 years things

Starting point is 00:41:38 have declined incredibly for Australians. In terms of recession, we have entered a per capita recession and this is the second time since 1991. So it is a significant time for us right now. What seemed like a recovery after COVID quickly turned sour. The country has really failed to push to higher heights with GDP and we can see that with wages. So when we have a look at the projection for wages as well, we've got a significant situation here where the owning the house dream has really decided to be just a dream for so many people because it's not projected to improve over the medium term with wages. Real wages in 2028, as a projection, will be the same as they were in 2014. So if you think that next year, the year after, the year after that, it's

Starting point is 00:42:39 going to get better, the stats say it is not. Now, we need to take that into consideration for our own situation. So we have to address this ourselves. If it's not going to come through our job, it has to come from another source. And that source I'm suggesting to you, and so is Bushy, it needs to be investment. So when we project this out to 2035, it is only just starting to get back to the figures that we're experiencing in 2021, 2022. Now, the gap between us and the rest of the world is incredibly significant. So you could be talking to your relative over in Amsterdam and they won't understand what you're talking about at all because they will have a different chart that is appealing to them and to their situation. So let's look at health care

Starting point is 00:43:34 costs. As we get older, definitely more things seem to fall off, go to the crapper. I don't know where I'm even allowed to say that on both of our podcasts, but I just have. The rising cost of living keeps older people awake at night. So this is a recent survey. According to the research, 53% of older Australians believe they will outlive their savings, as Bush and I have been saying. Now, when we look at the average annual healthcare costs per person, it is even more illuminating. This is so significant where have a look how much it increases. There's a difference between males and females, clearly. So let's just take when we start life. So the health expenditure is fairly high when we start life. Between the ages of zero and one, lots of

Starting point is 00:44:25 things have to be done so that we can survive. I mean, the mortality rates are so different now compared to so many years ago and it does flatten out there is no doubt but let's have a look at around about the age of 50 years of age what happens health expenditures start to increase rapidly and they continue to rise for all age brackets after that so the per capita health expenditure for an average 80 year old is almost seven times higher than that of an average 20 year old. And in many countries, the per capita health expenditure often peaks at around the 80 to 89 age group. So it slightly declines after that for a lot of places. But in actual fact, for Australia, we're not seeing that. We are actually seeing it increase and increase and

Starting point is 00:45:15 increase, which is very scary. Now, I want to address solutions. Now, there are many different ways that we can approach this. But the three that I think, and I'd like your thoughts on this Bushy is firstly, make a realistic assessment of where you are right now. Know exactly what you've got coming to your household. Know your exact expenditures. You may have to track this in a book or using Quicken or another software item of your choice, but make sure you know exactly what you are facing. Try not to shy away from this. It's so easy to bury our head in the sand and that will not help our future self excel in retirement. Also consider multiple sources of income. It is never too late. One of my mentorees was 98 years old when he finally passed away and he became a

Starting point is 00:46:04 full-time trader in the final 12 years of his life. My beautiful Ted, I was so proud of him because he got off the pension and he totally funded himself through the markets. And that's the type of thing that really just lights me up. And also watch your expenses. Think about whether things are a depreciating or an appreciating asset. The difficulty with debt is when we're putting it into depreciating assets like cars, like holidays, like our credit card that we haven't paid off because, hey, we'll just pay the minimum balance. That direction of debt into depreciating assets is the root of all evil when it comes to retiring early and retiring in style. We need to make sure that the debt that we take on is into an appreciating asset so that we've got that chance

Starting point is 00:46:56 to not only have money coming in through our household because of our own sweat equity, but also it's like we've got a silent force also working in our household that is lifting our income up as well. So those assets are key and that is something that I think we both are in agreement with, Bushy. Your thoughts on the solution? Well, I think you've pretty much covered it off perfectly, Louise. The only things I would reinforce in addition to that, and you've touched on already, is the need to really put together a diversified portfolio. And I totally agree with. We're into the cashflow side of our exercise now. And you mentioned ETFs and index funds. That's exactly where we're putting it because we're effectively betting on the whole

Starting point is 00:47:44 race, not just an individual horse, which means that providing that overall it's going in the right direction, we're going to be okay. So that diversification and also investing in uncorrelated assets so that if the share market's up and property's down, then you're still going to be okay and vice versa. So they're actually balancing the exercise out and minimizing the overall risk long-term is something to really, to be a blend investor so that it is equities and property is a key. And then I'm talking about property beyond your family home, because from where I sit, your family home is an asset because it's not putting income in your pocket. Yes, it might be increasing in value, but you can only access that value if you sell it,

Starting point is 00:48:27 and then you've got to live somewhere else. So I'm talking about property outside of the family home. And 54% of Australians' wealth is currently embedded in their family home, Louise, which is pretty scary. So that's why there's so many asset-rich but cashflow-poor retirees that we are currently talking about because they're just focused on the family home. So I think that's really important. And taking a long-term approach, if we use the living example of one of the greatest investors on the planet, Warren Buffett, you would know better than I that he's accumulated over 90% of his wealth after the age of 50. So it doesn't stop at retirement. We start investing as early as we can, but we keep investing until the day we die because that's going to enable us to

Starting point is 00:49:18 keep funding our needs but also as you've also touched on leave a fantastic legacy for those that to follow through us and looking after our family and having the opportunity to really fund those special events that that you touched on so well you're on the exercise the way so well I think that's a very timely wake-up calls and these retirement warnings I'm sure a lot of people listening or watching in are going to be nodding their head going oh that's that's actually me I really need to be doing something. If you are wanting to do something, please reach out to Louise or myself. We run personal solution sessions. So just jump on the knowhowproperty.com website and book in for a personal solution session. We can run through your freedom numbers

Starting point is 00:50:02 and your bare facts to give you a sense. And then from there, mixing the property and the equities need to blend best. There's the opportunity to talk to both of us. So what's the best way for everyone to have a further chat and work with you, Louise? Yeah, Bushy, I'm also loving your podcast, Get Invested. It's so nice to be able to do this collaboration. As you know, I think the world of you and it's just so wonderful to see that the people that you're helping are excelling and I'm enjoying so much hearing your podcast, Get Invested. My podcast is talkingtrading.com.au. So that would be a definite one for all of your people to get involved with as well. You will hear complimentary strategies from the two of us. This is not going

Starting point is 00:50:53 to be something where we're overriding each other and you're going to get confused. The consistency between Bushy and my thoughts is fairly strong, but you're going to be able to cover it through a different vehicle. So my vehicle is mainly the stock market and Bushy's vehicle is mainly property so if you are interested in the stock market come to my other website tradinggame.com.au tradinggame.com.au download my free trading plan template that will give you everything you need to create the plan of your dreams so that you can invest like a market pro in the markets today so that is a free resource that I provide just enter your details to register and I'll send it straight over to you. Bushy, what a pleasure having you on the show. Any parting words?

Starting point is 00:51:42 Yes. Well, like yourself, if people want to sort of up the ante in relation to their awareness of what they do, you can jump on our website and grab a free copy of the Get Invested book, which talks a fair bit about some of the issues that we touched on today, but goes into a fair bit more detail. But I'm thinking this is the first of many ongoing discussions, Louise, because every time that we talk, I get invigorated and energized and I encourage everyone who's listening in. Louise and I had a sensational conversation on Get Invested a couple of years ago now. So jump into the archives and have a good listen to that. It was a really good episode, as well as Chris Tate, who Chris and Louise have worked very closely together. I've got a lot of

Starting point is 00:52:25 time for you and Chris. I know Chris has had some health challenges himself in recent times, But the combination there in terms of really getting independent, transparent, honest, and open direction and guidance on how best to optimize your position in the equities environment, there's no better place to go. And your book was the first and the best book that I've read that really got me started on my own investment journey, Louise. So you've got a lot to thank for. I wouldn't be sitting here talking to you now if it wasn't for the early guidance I

Starting point is 00:52:58 got from your book. well that just lights me up thank you so much bushy i've enjoyed having you on the show and until next week happy trading thanks for tuning in to get invested on the property hub podcast channel your home for property investment insights and inspiration make sure you subscribe to property hub for free get your weekly dose of get invested inspiration along with every episode of realty talk australia's top online property show for red hot property investing news and insights direct from industry leaders and influencers. And finally, I'll see you next time.

Property Hub - Investment Insights & Inspiration - Get Invested: 5 critical retirement warning signs with Louise Bedford

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