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Retirement and Antarctica: start early in setting your goals

How to turn a 10-day expedition to Antarctica with 120 other passenger into an investing and superannuation story? Simple. Look around the dining room on the first night and chat to a few people, and you soon realise how many retirees are ticking off their bucket list. And it’s quite a list, with the next trip and the one after that already planned.

For those who can afford it, this is what saving, investing and superannuation are intended for. It’s not simply being ‘comfortable’. ASFA’s Comfortable Retirement Standard for a couple is $61,500 a year, and Antarctica is an expensive trip. Many passengers have worked hard all their lives, and they are enjoying their freedom while they are healthy enough. 

The warm kayak, or making the most of a life of work

Let’s start in South America, at the bottom of Argentina in Tierra del Fuego province, which translates to ‘Land of Fires’. The major city is Ushuaia (see map at end), and it’s close to the Southern Ocean and the departure point for many boats heading for Antarctica. The name derives from a time when natives lined their canoes with clay and lit fires to warm themselves on fishing trips. While this immediately prompted the ‘you can have your kayak and heat it too’ thought, it’s also a good summary of the aim of ‘retirement’.

During the 10 days, it was apparent how much money and willingness to spend it was in that room. Lots of affectionate chat about grandchildren (try to look interested) but handing them back to their parents and going away is as good.

Businesses and marketers, including in wealth management, who focus on younger generations are missing an opportunity. Generally, these people were not born into money and would not consider themselves ‘wealthy’ but have accumulated assets over 40 years of work. They now carry expensive cameras with zoom lenses, dress in the latest outdoor gear, wear cool sunglasses and carry the latest mobile tech. They may be into their seventh or eighth decade, but there’s no asking the kids how the internet works or how to copy photographs to a USB. Other equipment such as walking sticks and hearing aids are common, but there’s surprisingly little complaining about aches and pains and health.

We previously published this article on marketing:

“Australians over the age of 50 have the highest levels of wealth and disposable income of any age segment, they outspend millennials in entertainment, auto, health, travel and almost every other category, but are largely ignored by brands.”

The Bank of Mum and Dad

Another popular topic was how difficult it has become for their children (now adults aged in their 30s and 40s) to buy their first home. Even when the Bank of Mum and Dad comes to the rescue, there are at least three models on the best way to do it for those who have sufficient resources.

(Most older people do not have the luxury of helping their children in these ways, but it’s a goal to aspire to when planning for retirement a few decades in advance).

  1. Give a gift as a contribution to a better property

Residential real estate in most Australian capital cities (what’s wrong with Darwin?) has become so expensive that gifting half a million to help buy a $1.5 million property still leaves the child to find a significant $1 million. For those who think it is ‘spoiling them’ and ‘they should make their own way in life’, consider if it is better to wait until they are 60 when they will inherit the estate anyway. Why not give some of the money early and make a better life for both children and grandchildren when they need it most?

  1. Provide a loan backed by an unregistered mortgage

A couple who had worked hard in a successful business wanted to help each of their three children equally but were worried that their marriages may not last and any gift would then be shared with the son- or daughter-in-law in a settlement. So they lent the money with a unregistered mortgage, which would give them a claim on the debt in a change in circumstance. They had no intention of invoking the mortgage terms, but it was a safety net. Consult with a financial adviser for this strategy.

  1. Become joint owners of the property

Another person had gone 50/50 with his son as joint owners. This enabled the child to make a start in a better quality of house, without the feeling of a handout, which the son strongly resisted. Instead of paying rent to his parents, they agreed he would be responsible for all outgoings including council and water rates and renovation costs. The parents have an investment with capital gain potential (which in reality is only about 2% after expenses on a normal residential investment property).

For anyone who can afford it, these methods allow the Bank of Mum and Dad to function while addressing some of the emotional, financial and future risk problems that might arise. Seek financial advice before taking any of these big steps.

Some ways to have your cake and eat it too

Let’s acknowledge not everyone can plan to spend far more in retirement than in their younger years. The 2015 Intergenerational Report says most people will continue to rely to some extent on a part age pension in retirement.

The starting point to affording trips like Antarctica is setting a goal early in life, often with the aid of an adviser who will have the tools available to show how much needs to be saved, in which investment vehicles over what period.

Assuming some level of spare spending capacity, how can a retiree travel the world when they have spent most of their lives paying off the mortgage? They may have accumulated a decent superannuation balance and a house but little extra spare cash.

Far be it for me to encourage profligate spending when running out of money is a major worry for many retirees. However, anyone who lives a parsimonious retirement, denying themselves a few luxuries and then leaving millions of  dollars to their kids seems to have the wrong priorities. Yes, the house might be needed to fund the nursing home, but the deposit usually goes back to the children on death. Do your numbers and live a little, such as:

  1. The Pension Loan Scheme (PLS) can be accessed by eligible people over the age of 65 who own their own home. The PLS ensures some restraint by not allowing lump sum borrowing but gives a cash flow equal to 150% of the age pension, creating a debt against the future value of the home after death. See previous articles here and here for more details.

  2. The age pension ’retirement gap’ attracts a lot of attention, such as in this article which describes how much pension is lost due to holding assets above a set level:

“On the assets side, for individual homeowners whose assessable assets are above $263,250, the pension is reduced by three dollars a fortnight (or $78 per year) for every additional $1,000 in assets. To offset this reduction, each $1,000, if invested, must generate an annual return above 7.8%.”

There are obvious risks in spending money (on non-assessible assets such as the family home or expenses such as travel) to qualify for a larger pension. I don’t like this strategy for the reasons outlined here but some financial advisers encourage their clients to spend money on themselves for this reason. There’s also a possibility that the rules might change.

  1. Downsizing a property can release capital and allow up to $300,000 per person to be added to superannuation for people aged over 65.

Back to the trip itself

We heard that the tempestuous Drake Passage crossing between South America and Antarctica could literally be hell at the bottom of the earth, and three days there and three back in violent seas was a major barrier.

But with our fly/fly trip, we flew to and from Punta Arenas in Chile into a military airfield on King George Island in the South Shetlands near the Antarctic Peninsula, where zodiacs whisked us onto the waiting ship and the warmth of hot chocolates and spacious cabins. No Drake Passage ship crossing in our case.

Source: Aurora Expeditions

This is the type of trip that many of the passengers had worked and saved for, and SKI holidays which ‘spend the kids’ inheritance’ are real.

The size of the ship is a vital part of the enjoyment. There are dozens of interesting places to visit in Antarctica, from isolated scientific research bases to penguin colonies, to close-up whale and seal watching and stepping onto ice floes. However, the maximum number allowed at any landing site is 100, and some sites permit only 35 people at historic locations.

A ship with 120 passengers, with a couple of dozen who take off elsewhere on kayaks and snorkelling trips, is ideal because everyone can go ashore at the same time. It allows two activities a day, and these visits are the highlights. It’s extraordinary to run around while floating on sea ice on the Weddle Sea, with massive icebergs drifting past. Not as amusing is a penguin pecking at your legs when you’re not supposed to move.

A ship with 500 passengers, and certainly one with thousands, would require passengers to remain onboard and this would compromise the experience. It must be an expedition, not a cruise. A ship with large numbers of passengers might mean they rarely disembark, with glaciers and wildlife spotted in the distance.

Having your cake

The chart below, provided by the Parliamentary Budget Office in February 2019, from a report called ‘Australia’s Ageing Population’, shows the proportion of the Australian population aged over 65 is set to double between 1971 and 2031.

In 2020, these people are not like their parents at the same age. It’s a growing, multi-billion dollar market of retirees living the good life, for travel, outdoor gear, cameras, hearing aids, expeditions, retirement savings, mobile tech, health services, airlines, real estate … the list is endless, long before nursing homes kick in.

What are you waiting for? Start your plans now, if not for Antarctica, then for something you have always wanted to do. Tell your adviser about your goals.

Comments welcome on how you have done it, or why you haven’t.

 

Graham Hand is Managing Editor of Firstlinks.

 

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10 Comments
Alan B
March 12, 2020

I enjoyed your article but disagree about the need for a financial adviser. If one has common sense and been budget conscious and goal orientated throughout life then a financial adviser is unnecessary. Better to run ones own affairs and avoid those who want to live off our savings. A few years ago I went to Antarctica, sailing south on a small Quark ship from Ushuaia. We crossed the stormy Drake Passage, which was a great experience with huge waves on either side, the ship tossing and pitching in the swell as I wedged myself into a corner of the bridge. The journey was as memorable as the destination. How did I afford it? During the GFC when shares plummeted, I bought. Then reinvested the dividends. Then lived off the dividends. Then travelled.

Paul Edwards
March 15, 2020

I agree. We can't all be expected to become doctors, authors, professors etc but the management of your own money should be the most important element in everyone's Basic Skill set. Remember the parable of the ten talents ( which lets be clear is about money management ,not a play on words about a person burying their personal talents)
The man who buried his money out of fear was not favoured by God as the story goes.

Mark
March 12, 2020

China's reward to us for a life time of hard work and a comfortable retirement is the coronavirus. In the past three weeks my Industry Superannuation Fund account has plummeted by $100,000.00. China have given the world financial pain and medical suffering. I was aiming to be a self funded retiree within 18 months without Gov't support, helping the children will now be difficult. It's not just me I'm thinking about it's the world. Trillions gone in one hit and many years to recover.

C
March 13, 2020

I don’t think China deliberately caused this virus, and they seem to have worked very hard to contain it once they realised how virulent it is. Everyone’s super has taken a hit, but you should still be able to be a self- funded retiree. It may take you a bit longer or you might decide that you can retire with less and markets will pick up over time. I don’t want to offend you, and you sound like you are upset, but blaming China is not going to help anyone and may encourage racism against people and businesses of asian appearance in Australia.

Mark
March 15, 2020

Hi C,
I am assuming Terry McCrann, the notable Australian Business Journalist sounds a bit upset also by his comments in the Sunday Herald Sun. Quote: "Nevertheless, China dumped us all in the mess - medical and economic and financial". But I don't want to offend him with a reply or suggest he is racist.
Kind Regards …..Mark.

SMSF Trustee
March 16, 2020

Nothing has happened in markets so far that isn't more than a move back to sensible valuations would have produced. Coronavirus was the trigger, but one way or another the S&P500 could not continue trading on a histroical P/E of 22 without the support of strong earnings growth.

As for your account plunging by $100k, I presume that means you had about $600k and now it's worth $500k. But if you were planning on being self-funded within 18 months and you needed to have $600k in capital, then you shouldn't have had as much risk in your fund.

Look in the mirror for the explanation of why your balance is down and don't blame China with no basis for it whatsoever.

Mark
March 17, 2020

Hi SMSF Trustee,
I looked into the mirror 6 months ago and being in the accumulation stage with 30 years of contributions and 2 years to retirement, decided to implement my retirement strategy.

A basic 2 bucket system plan.
Bucket 1: Balanced Growth Option - To provide capital growth to rebalancing Bucket 2.
Bucket 2: Cash Option - To provide guaranteed low returns, with no exposure to volatility.

I looked into my buckets today and didn't like what stared back at me in Bucket 1. It is now $184,000.00 down and still dropping in 17 trading days (21/2 to 17/3). I can't work out why or what has caused this. Perhaps I had better have another look in the mirror and chant mirror, mirror on the wall for an answer.
Anyway Bucket 2 looks better though, it has virtually remained unchanged and is still holding four years of projected budgeted expenditure, which provides protection now and for when I retire.

This is definitely not a blame game or he said she said and there is no racism attached here.
It is about people facing truths, facts and reality. The coronavirus originated in China and since escaping from there is creating a devastating effect on billions of people all over the world.

I presume some people can't handle the truth because it hurts.

Kind Regards …… Mark

SMSF Trustee
March 18, 2020

Hi Mark, you definitely blamed China, in quite direct accusatory terms, in your first message. If you'd taken the approach you've now adopted then I would not have reacted to your comments. So, if my comment and C (who called you on it as well) has resulted in a change on your part, then that's fine.

I'm very sorry your investments are down that much. Mine are too and so would just about everyone else's be at the moment. But it's not China's fault. Rather, it's because shares are a risky asset and share prices change a lot when either earnings forecasts change and the discount rate that is the rate of return on those earnings changes. Any investor who has shares (and a Balance Fund does - especially an Industry Fund balanced fund which is probably actually an imbalanced fund at 70% in shares, etc) needs to know that and be able to live with it.

Mark
March 19, 2020

China is the country where 99% of world medical authorities believe the coronavirus originated. If as you say it is not China's fault and they are not to blame. Could you please explain to Firstlinks followers who would you assign responsibility or blame for the current medical and financial catastrophe that is gripping the world? Over and out ..... Mark.

Andrew
March 12, 2020

see It before it’s gone tourism.


 

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