Paul Glossop: Welcome again guys to Pure Property investment one on one. Today I’m here with Munzurul Kahn. Munzurul is the principle of Keshab Chartered Accountants. Today we wanted to really follow on from the theme that we’ve spoken about as well which is self-managed super funds. And a little bit more about structuring retirement goals.
It’s something I think a lot of us probably do, and you would see this probably more often than I, maybe a little bit late in the planning process. And I think planning for retirement is something that doesn’t, and shouldn’t, happen in your 50’s or 60’s. It really is something that I think we should, unfortunately as boring as it may sound to 20 and 30, even 40 year olds, it is something that should always be part of what your methodology is for investing, and where your money’s going, where it’s coming in. So Munzurul if you wouldn’t mind sharing with our viewers a little bit more about structuring your retirement goals.
Munzurul Khan: It’s I guess the all, sort of inclusive question and the most important question I suppose, the first question comes into my mind, that “What is the definition of the retirement?”, as such “What does that mean to you?” And there is no one particular answer, right? So I sit down with many investors and investors sort of say, all the way from “I would like to retire at twenty-five thousand disposable income” to all the way “I say million dollar per year of disposable income.” But I suppose the point is that the first thing that we need is to identify a certain level of revenue that we would like it to be as a passive source of revenue for us for the rest of our life.
Retirement doesn’t necessarily mean that we sit around, I suppose, we do nothing, right? I mean what do we do, will we love what we do. So it’s not so much that it’s not doing anything, it’s more about providing in the flexibility, providing you the option, that I go to work because I choose to go to work. I don’t go to work because I have to go to work, right? So I suppose the question comes in that we quantify that, “What is the retirement?” So I sit down with the investors quite a bit and without being a financial planner, more from an accountant side of it, I ask the question that “What is the level of the disposable income that he would like to retire with?” So people come in to a whole lot of different figures.
Let’s say as an example, if people sort of say that, “Look, I’d like to have one hundred thousand passive income per year to maintain my retirement”, as an example. Then I say, “Well perhaps you need your house to be fully paid, right?” So the question comes in then that, what is the level of the asset that we would need to reach into that hundred thousand, sort of the retirement goal as such. So, if we use a very basic say compounding of say 5%, so that means for one to have a hundred thousand disposable income we need about two million dollar asset base. Then I suppose we need our house to be fully paid, median prices in Sydney, is about a million dollars, right? So we add away another million. So we sort of say that on that example, it’s a three million dollar asset base that we need. So the question I suppose is, is it a three million gross or three million net? It is a three million net. So it’s three million dollar of overall asset base which is fully paid off.
So one way, one sort of a structure, or potentially structure, one says that “Well, if that is our longer period of goal, then why don’t we break it down into smaller goals?” And the smaller goal would be that, let’s achieve the three million dollar asset base in the first place. Yes, there could be a whole bunch of mortgages against it and it could be, you know, a certain amount of sort of equity. But let’s grab that three million dollar sort of an asset base. And then we come up with the strategy, how do we pay it off? So, it could be as simple as that over a period of time we save, and we pay it off, as such; it could be as such that we sort of manufactured the equity. It could be as such that rather than three million, we buy four or five million dollar asset base and then we sort of take a step back and we sell some of those sort of assets as such.
Whatever the strategy, there’s no one strategy. Whatever the strategy I suppose the important comment, if I may, is that it’s about the quantification of the strategy. It’s about the smart goals. What is my disposable income? What is the time frame that I need to achieve it? And for me to achieve it , what is our step one? How do we achieve that sort of asset base in the first place? And then how do we pay it off over period of time?
Paul Glossop: Absolutely. I think that the whole start with the end in mind analogy is really what’s vital when investing. Whether it be property, whether it be assets, whether it be anything that that you’re going to try and manufacture either capital or cash flow out of, having an end goal. If you’re starting without really an objective, you know I see it a lot of times, and you probably see it a lot of times as well, that investors sometimes just become investors because they like it. And that’s all good and well but it´s typically if you like it you’re probably are more involved and you’ll get it and you’ll be more detail focused.
However, if you don’t really have an end goal a lot of the time people are just on the hamster wheel. And then you’re chasing, and you don’t really understand why you’re doing it or what you’re doing it for. Ultimately if your objective is you just want to build as big an asset base as you can then fine, that’s absolutely fine as an objective. But if you don’t have a number to crystallize and say either by this age, or by this absolute capital amount, or by this equity amount, this is what I’m trying to achieve, then a lot of people meander through the investment journey without really truly understanding if they’ve succeeded or not. And if you have a goal you at least can tick something off at the end of the day and say “I´m working towards that “. People say “Why am I buying that?” or “I’m buying this to fit this”, and this is really what I’m trying to achieve long-term.
So absolutely vital mate. I think setting those goals and objectives early in the piece is vital. And it you don’t have to be 55 or 65 to plan for your retirement, you really should be doing it a lot, lot sooner.
So, again, if you’d like to get in contact with Munzurul feel free. The contact details are at the bottom of the screen.
Likewise with myself and my team, our contact details are at the bottom the screen. And we’re more than happy to have a chat if you do desire. We’ll catch up soon. Cheers!