This could be YOUR retirement
Cashing up property assets to live cheaply? Consider the Pacific, or the Greek Islands.
Kiwis just love investing in property, especially the house they live in, and one of the most common problems for retirees is they have most of their wealth tied up in their house.
A growing number of retirees have not had sufficient income to pay off their mortgage before retirement, let alone build up a portfolio of investment assets to supplement their pension.
Being asset rich and cash poor in retirement is a recipe for a miserable life.
There needs to be a good balance between money tied up in your home and money in investments which can provide cash to top-up your retirement income. A handy rule of thumb is to have around half the value of your home in liquid investments, however the right balance depends on your personal circumstances and what you want out of life.
If too much value is tied up in your house and you are not in a position to increase your investments, you will need to choose between adjusting your lifestyle to fit a smaller budget, downsizing your home, or perhaps using your home as security for a reverse equity mortgage.
The good news is, there are many different options for achieving the ideal outcome – a comfortable house to live in and enough money on hand to enjoy your retirement. It’s just a matter of thinking outside the square and considering which option best suits what you want out of life.
At one extreme you can sell your house and rent for the rest of your life while spending the money released from the sale of your house. This can work well for a few years, but may not be a good long-term strategy. Unlike Europe, where landlords are pension funds who hold properties for decades and charge low rents, New Zealand landlords buy and sell, our property prices are high, and rents keep going up to match the increase in property prices.
Renting in retirement for the long term is risky for these reasons. Of course your landlord may be one of your children. A granny flat is a good solution providing you have a great relationship with your family. For a low or even nocost renting option you can become a house-sitter, looking after pets while their owners are away. If you don’t mind a nomadic lifestyle, you can get free accommodation anywhere around the world through websites such as trustedhousesitters.com.
Selling your house and buying a cheaper one in the same or a similar area is another solution.
There is little disruption to your connections with family and friends and you remain in familiar surroundings with spare money to fund your lifestyle. People who plan to downsize their home on retirement in order to release funds can find themselves buying a smaller place, but one which is newer so there is little difference in the price. Once you are used to a certain standard of living it can be hard to move to a lower-quality house but what is the point of being stuck in a beautiful home with no money to get out and enjoy life?
If maintaining your standard of living is important, consider moving to a house of similar quality in a town or city where average house prices are lower. You will usually find living costs are lower as well, so it is a double win. While this potentially means moving away from family and friends, if you are newly retired you have plenty of time to make new friends and as far as your children are concerned, there are no guarantees they will stay living close to you, anyway.
It’s a good idea to ‘‘test drive’’ a new area before you buy. You can do this by renting or having several holidays in the area before you make a permanent move.
For the adventurous, there is another option which can allow you to live in luxury. As air travel gets cheaper, more people are choosing to live in another country.
The trick is to find a country where the standard of living is good but cheap, with great scenery, good healthcare and good support services for retirees.
Take Costa Rica for example, which is ranked top of the Happy Planet Index published by the New Economics Foundation, a UK think-tank.
This tropical Central American paradise puts priority on education, health and environmental protection and is becoming a magnet for retirees. You can buy a luxury home in the rainforest areas for less than $300,000 and a couple can live comfortably on around $16,000 a year. Or perhaps one of the Greek or Pacific Islands is more appealing.
If you are moving country, you will need to check your eligibility for a New Zealand or overseas pension.
International Living (internationalliving.com) is one of a growing number of companies which specialises in providing information on how and where to retire overseas.
Ultimately, your retirement living choice will come down to what will bring you the most happiness, and happiness needn’t cost a lot of money.
Liz Koh is an authorised financial adviser and author of Your Money Personality: Unlock the
Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.
If you are moving country, you will need to check your eligibility for a New Zealand or overseas pension.