Photo: RNZ
Send your questions to susan.edmunds@rnz.co.nz
As a single person without dependents I often think about how I've worked all my life and gone without in order to own my home, but now the vast majority of my capital is locked into it and I am facing retirement with a mortgage-free home and little else.
It will not be the carefree retirement I was always told I would achieve if I worked hard and paid off a house, rather an ongoing struggle to meet escalating property ownership costs with little more than the pension and a bit of KiwiSaver (with luck), and very few extras to make retired life more enjoyable.
I have thought of selling the house and adding the proceeds to my KiwiSaver balance (currently fluctuating between $165,000 - $175,000) and just live on it, spending it all. Like John Key, I'd love to die as I spent my final cent! Selling the house would leave me back subject to the vagaries of the rental market. But is that actually a better use of my capital?
I can see why you might be turning this over in your mind. To help me work through the scenarios, I roped in Gareth Kiernan, chief forecaster at Infometrics. He's much better with a spreadsheet than I am.
We've assumed that you have a house that's worth about $1 million and that you live in a city like Hamilton.
Kiernan ran a couple of scenarios. The first was using average six-month term deposit rates and rental inflation over the past 10 years, adjusted to assume a premium relative to inflation and with inflation at 2 percent.
The second calculation was using data over the last 23 years, which is the length of time it's possible to get a reliable rent figure from the CPI.
He used Hamilton's average rent of $510 a week and allowed for interest income being taxed at 33 percent until you are 65, assuming you remain in work until then, and 17.5 percent afterwards.
Using the 10-year averages, $1 million made from selling a home would last until 2061. This does not cover any costs other than rent.
Using 23-year averages, where there is a much bigger gap between interest rates and rental inflation, your capital would last until 2076.
That seems pretty safe at first glance. But he says there are things to watch out for.
Selling a house for retirement isn't always an easy chore. Photo: 123rf
If your house is worth less than $1 million, your money will not last as long.
You may not be able to find a house to rent that is as nice as the one you own.
"The quality of the average rental property is significantly lower than the quality of the average owner-occupied house," Kiernan said.
That could mean that you have to pay more than the average rent to get a house that's comfortable for you.
Kiernan said if you were paying $765 a week in rent, your money would only last until 2049 on the first set of assumptions, or 2055 on the second.
"They're still not bad outcomes, though."
You could assume you were going to call on government support at that point, potentially.
Kiernan said it did not need to be all or nothing, though. You could downsize to a smaller house and free up some money.
When you finish work, you might have more options in terms of where you live - noting that your health needs might increase as you get older so you might want to be near a main centre for access to healthcare.
"Another alternative is a reverse mortgage to free up capital. I'm not a big fan of them because the numbers are generally stacked in favour of the lender.
"However, where the need for access to capital is of major importance, a carefully considered reverse mortgage might have its place. There are limitations about what you can borrow though, so if you exhaust that avenue and then find you need money again at a future date, there are no options - plus you're pretty much stuck in the same property because of the mortgage over it."
I'd also note that while it might work from a financial perspective, renting can come with a lot of instability. Moving house at 65 is probably not a great prospect but getting notice that you have to leave your home because your landlord wants to move back in when you're 85 could be really tough.
I live in Auckland (Central), where I'm renting a property at $620 per week, paid from my income. I also have $850,000 in savings, accumulated from previous homeownership. This amount is sitting in a low-interest bank account, untouched apart from occasionally using part of the interest payments. Additionally, I have approximately $150,000 in my KiwiSaver account.
At 61, I am conscious of my retirement and the need to make wise financial choices, but I find myself uncertain about the best path forward.
Buying a home: I've considered purchasing a property, but I'm hesitant due to the associated costs - mortgage payments, rates, insurance, and maintenance - which feel burdensome. Furthermore, I'm unsure at this stage about where I want to buy, which adds to my reluctance. However, I wonder if investing in property might ultimately be more beneficial for my financial future.
Investing in a managed fund: Another option I've thought about is investing my savings in managed fund(s). Leaving the money there for five or six years could potentially allow it to grow substantially (although recognising the current market volatility). But I worry whether this would be a better choice compared to homeownership at my age.
Dean Anderson, founder of Kernel Wealth, helped me answer your question. He says it is an increasingly common one - how do you create a sustainable financial foundation for retirement while maintaining flexibility in your lifestyle?
"There is a real fear of running out of money and then being dependent on others," he said.
He says you are in an enviable financial position at the moment and have time to make a well-considered decision. A financial planner could help you look through your options and come up with a strategy that works for your goals.
"While home ownership often provides emotional security and control over one's living situation, particularly in retirement, the current market dynamics deserve careful consideration."
He said New Zealand housing was relatively expensive and Auckland in particular was going through changes.
"Having experienced an influx of new builds under $1m potentially impacting future price appreciation - with many economists now forecasting flat to moderate house price growth over the coming years. Moreover, concentrating such a substantial portion of wealth in a single asset can create challenges, as many current retirees are discovering - they're asset-rich but face cashflow constraints due to escalating insurance, rates, and maintenance costs.
"A stable rental situation remains an alternative and can provide flexibility, which is particularly valuable when future plans aren't fully clear. Do they want to stay in Auckland or is there another spot in NZ they would like to move to? What role does family play? Is travel on the cards? And so forth."
He said a managed fund approach could provide flexibility and structured income, particularly the short term.
You could have two or three years' worth of living expenses in conservative investments such as cash funds and term deposits, then put the rest in a moderate or balanced portfolio.
He said a $750,000 portfolio with a 4 percent withdrawal rate would give you $30,000. Combined with NZ Super that gives you $54,000 or more a year.
"However, individual circumstances such as health considerations, legacy planning, and other personal factors will influence the optimal strategy. The best approach often combines elements from multiple scenarios, adapting over time as circumstances change.
"Given the complexity and importance of this decision, investing in professional financial advice can be key. A few thousand dollars spent on comprehensive financial planning could provide both peace of mind and a flexible roadmap for the future."
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