It’s hard to change your attitude or ‘turn your back’ on some of the goals you’ve achieved in life. If getting debt-free on your home was what you wanted to do before retirement, this may be something that needs to change – especially if you want a life which is ABOVE average.
Today’s episode is brought to you by the word –Retirement – perhaps it’s a long way off for you – but it’s important that we discuss this every now and then – and so that’s what today’s episode is really all about. Many people, either on purpose or by accident have a simple, default plan for retirement – Get debt-free on a home, then live off super and hopefully have this topped up some KiwiSaver funds.
A study done in 2018 showed that actual spending of a typical retired couple, revealed a shortfall in weekly income by just over $200 per week to fund a very basic lifestyle. So where can the rest come from? It has to come from somewhere right – so where?
It could come by working longer – that’s fine, if health permits, but working for life – really?
It could come by selling the home – but what if you don’t want to move to a smaller home, further away from where potentially your family and friends still live?
Apart from down-sizing the home, or working later on, the options are limited for retirees unless there’s sufficient other investments that they can draw down on
Another question is this – aren’t we allowed to have more? In retirement, don’t you want to travel, spend time with family, help the kids with getting started with property.
How can you make up the shortfall if everything is tied up in your home to simply live well – then beyond that, is there anything one could do to account for the unexpected costs you’ve experienced your entire life – these aren’t going away when you retire.
But in essence, If you have a choice today (and I appreciate some don’t) and if you had the power to influence your future (which hey, you do by the way), wouldn’t you prefer to choose an awesome lifestyle in retirement? I certainly would!
Today I’m talking with Shaun Drylie, Group CEO at SBS bank – relying on property is tricky with retirement planning, because it’s illiquid – it cant be converted to cash quickly. It’s why with retirement planning, it may not be included in the tool box of things that can be consumed in your later years.
So, for the everyday investor, those who do think property is the be all and end all when it comes to building wealth – could the equity in a debt-free home that we’re aiming for in retirement, be accessed to create an additional income source to supplement our lifestyle needs? The answer is yes, and it’s not as ugly as you may think.
Standard, orthodox financial advice, disagrees with classifying your main home as an investment. In reality however, the bulk of people who own property do actually think of their home as an investment – Is it time for us in the investment community to account for this somewhat heretical viewpoint I wonder?
A reverse mortgage has traditionally been frowned upon and I totally get why. In a sense, you’re turning your back on the habits that got you into the position you’re in – specifically, the position of having a debt-free home. Idealistically sure, it’s great to keep your family home separate and fund retirement by other means – but you can’t ignore the reality that for many, the only other option to supplement retirement needs is to sell up, and move into a property that you may not be ready for.
Often orthodox advice here is at odds with practical advice – and what I mean by this is simple: If you can stay living in your home, yet access capital in that property to live off of, then why not? Interest rates have been trending down for decades and in true fashion of blaming Covid for everything, what we’re seeing now is an acceleration of this trend – lower interest rates for longer, and higher asset prices will be a high probability outcome. To be honest, I’ve frowned upon these reverse equity mortgages in the past – but I think some new thinking is required here.
Not only will reverse mortgage likely become a little more mainstream for retirees –I can see how in some cases, older parents could assist their children with deposits, to purchase their homes sooner too. Kids have the income but limited deposit, parents have the equity but limited income – there could be something in this. Instead of waiting for mum and dad to sell up or hurry up and get dead, maybe there’s an opportunity for both groups to spend more time in property ownership? Maybe the folks could get a reverse mortgage, give the proceeds to the kids as a deposit to purchase their first home sooner. When the kids are in a position to pay back the parents – great. It’s a win-win, especially if property values on both the parents home, and the kids new purchase, increases over time.
Now, if you’d like to learn more about how a reverse mortgage could work for you, or for your parents, or even for both of you – there’s two things I can suggest:
1 – Get in contact with SBS to discuss this further
2- you can reach out for some advice from a registered or authorised financial adviser that you feel comfortable working with to discuss this with further
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