Ahead of The Game – EPISODE 10: Retirement Planning (Changing the Game Part 2)
Welcome to Ahead of the Game, a podcast brought to you by KMT Partners. I am Andrew Montesi. We are continuing on with our “Changing the Game” theme with our very own Lachlan Kennett, focusing and providing us short and sharp tips and insights on planning and funding retirement.
AM Andrew Montesi
LK Lachlan Kennett
AM Welcome to Ahead of the Game, a podcast brought to you by KMT Partners. I’m Andrew Montesi. This instalment of our mini series, Changing the Game, KMT director Lachlan Kennett provides short and sharp tips and insights on funding retirement. Lachlan, welcome to the podcast.
LK Thank you.
AM So we’re talking about retirement. When is the best time to start planning for retirement?
LK Ultimately it’s today. Regardless of your age, there are small steps that you could be doing now to make big difference at retirement. Whether you’re in your twenties and it’s setting your super up so you can maximise its growth over long term. Or whether you’re a couple years out from retirement and you want to make some drastic changes to the strategy you’re using and to maximise your assets for retirement. There’s normally something that everyone should be doing to make sure that come retirement, they are in the best position.
AM Talking ballpark numbers, how much do we need in retirement?
LK Look, it’s a very broad question and it’s personalised to each individual. There’s a few things that we use to calculate for that person. How long until they’re retiring, at what age do they want to retire, their sources of retirement income all play a part. But the big one is obviously around budgeting and how much do you want to spend.
Am I’ve read somewhere that a typical amount could be around $60,000 a year.
LK Yes, definitely. So that’s deemed to be I suppose a comfortable retirement where you may be going on holiday every year, you may be updating your car every so often, going out, really enjoying your retirement and not missing out. So it’s a bit over a $1000 a week and that’s assuming your house is already paid and all those sorts of things.
AM In context, it’s a fair bit of money. So we talk about cash flow a fair bit in business, and we’re talking about what’s quite a large sum of money in retirement, cash flow is going to be big on a personal level as well. Where do you start with that?
LK It comes down to the fundamentals. All financial advice comes back to the basic underlying foundation of budgeting. And making sure you know where your money is going. So for retirement planning, we often look at if we’re planning for someone to retire in a couple of years, get a gauge as to how much they’re spending now.
If they’re spending $100,000 now, maybe $60,000 in retirement won’t be enough. Maybe they’ll be above that. But if they’re spending $40,000 now, is that figure more likely to be realistic in retirement? So it is personal, it does depend on the individual. I’ve had clients that have a lot of money but are going to spend all their money and they’ll go through that. And others that have a small amount of money, but don’t spend at the age of pension. So they’ve got more than surplus for their needs. So it is very personalised to the individual.
AM How do we then go about setting out a retirement plan? Perhaps first from a context of someone that’s a fair way off retirement, perhaps decades out.
LK The good part about planning when you’re so far out from retirement is the compounding nature. Small changes you make now, can have big compounding effects in the future. If you can make some changes and perhaps take on a little bit more volatility with your investments and maybe over long term get a 1% better return, that could be a big difference over time. Changes to a whole range of different circumstances. Contribute a little bit extra to a retirement pot now can again compound up and make big differences.
AM And again, perhaps in the context of someone that’s a fair way off retirement, how do you address goals with them when perhaps they might actually not know what the future might hold entirely?
LK Although we don’t know necessarily exactly what you may want at retirement, it’s important to think about what would give me options in the future. I’m not sure at what age I want to retire, maybe I want to retire early, maybe I want to work until well past age of pension. What is important is that you have options.
You don’t want to be forced into making certain decisions in the future. So accumulating more wealth gives you options. Having the money in the bank or in whatever vehicle you want, gives you options in the future to make changes as you want rather than as are required based on your finances. So that’s really where I suppose we start with financial planning and retirement planning for younger people. It’s about giving your options in the future rather than addressing set goals.
AM So with retirement planning, what are the risks, the unpredictable aspects of this space?
LK So there’s a number of risks and that’s where it comes back to giving yourself options. The more options you have, the better. Risks around say, investment markets going down just before you want to retire, we can offset that with conservative investments where you can I suppose, pool money aside to use in that instance. So it doesn’t necessarily have to affect your retirement. We saw that a lot in 2008, people were putting off their retirement. Well if the plan is set up appropriately, is there a need to do that? Potentially not.
If you’re looking at selling your business, what’s the value of your business? What can you sell it for in five years’ time and how will that and any changes there affect your retirement?
And then perhaps the last big one is your personal health. A lot of people accumulate a larger portion of their retirement savings in the last ten years before retirement. And now if you’re not able to work a few years during that period, during your poor health, what impact does that have on your retirement? So addressing those risks is very important to make sure you have a comprehensive retirement plan.
AM So if I’m looking to set up my retirement plan or at least begin the process, what’s the first step that I should be taking?
LK It’s really to get a good understanding of where you’re currently situated. And what your current retirement may look like if you do nothing. So that’s the process that we go through. So we would talk about what your current strategy that you’ve got in place, where you’re currently invested, what your retirement may look like. And then we can look at what are you willing to change now?
And that may not be I want to put money aside for retirement, that may be I want to take a little bit more volatility or whatever the strategy is based on your circumstances. But that’s where we look at your situation and just try to decide whether we can add value for you.
AM Awesome, thanks very much.
AM Thanks for listening to this game changer episode with Lachlan Kennett from KMT Partners. Your next step, contact KMT and arrange a time to meet. KMT will bear the cost of this initial discussion. Get in touch and find out more about KMT’s accounting, business, management, growth, compliance, and advisory services. Get in touch at KMTpartners.com.au.
This podcast is brought to you by KMT Partners. KMT is a leading accounting and wealth management advisory firm in South Australia, assisting you to emerge, renew, grow and build resilience in business, themes which are central to this podcast series. For more information visit KMTpartners.com.au
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This podcast is hosted and produced by Andrew Montesi from Apiro Consulting apiroconsulting.com