Retirees need pot of gold to cover rent

If you are planning on being a lifelong renter, here’s a reality check.

To live in median-priced rental accommodation through your retirement, without extra government assistance, you would need to save the sort of money that it might have cost you to buy a house anyway.

Calculations from variable annuity provider Lifetime show that it would require an investment of $500,000 at 65 to provide enough weekly income from then on to cover the country’s median weekly rent of $420. This is an income for life – you don’t have to guess how long you will live. It also assumes that the initial lump sum is being drawn down, supplemented by investment returns.

A couple could split that amount between them.

They would then be left to live on the pension, of $400 after tax per week for a single person living alone, or $308 each for a couple.

ASB chief economist Nick Tuffley said that retirees needed a ‘‘fair degree’’ of money in either case, whether it was to purchase a house outright before retirement or for rent. ‘‘On top of that you have to save more to cover your living expenses.’’

But home ownership reduced ‘‘operating costs’’ of providing housing and improved cashflow, there were still associated costs such as maintenance, rates and insurance. ‘‘That can add up to quite a bit.’’

Many older people were asset rich and cash poor, he said, which could also be an issue.

‘‘Renting might not necessarily prove to be a bad option. The thing is, if people are consciously making the decision ‘I’m going to rent all my life’ they do need to make sure they are putting aside money over and above the rent they were paying,’’ Tuffley said.

Economist Mieke Welvaert, of Infometrics, said someone with $500,000 in savings might decide that it was better to buy a house at that point.

‘‘Probably not in Auckland but you’d be able to get a nice spot in several other parts of the country for $500,000.’’

Welvaert said homeowners were compelled to put money away through their lives in a way that tenants were not.

‘‘Paying off a mortgage can also be considered a way to force yourself to save for retirement. Aside from KiwiSaver, no one really makes you save for retirement but a bank will get you to pay your mortgage.’’

Homeowners who paid off the debt could then downsize and realise some of the value.

Her colleague, Gareth Kiernan, said the ability to leverage capital gains from mortgage debt was an ‘‘extremely compelling’’ reason for buying.

‘‘Assuming mortgage rates don’t change, you’re effectively fixing your accommodation costs at today’s prices when you buy a house, whereas rents will keep going up.’’

He said people who were lifelong renters were probably poorer and could not afford to save a deposit. Some banks might be unwilling to lend if they worried they might not service the debt, he said.

‘‘So if these people are then going to be worse off in retirement because they have to keep paying rent, we’re effectively locking a subsection of society into relative poverty.’’ Ryman Healthcare has reported another healthy profit, purchase of new sites, and is farewelling one of its founders, director Kevin Hickman.

Hickman’s oft-quoted philosophy was that Ryman’s care had to be ‘‘good enough for Mum’’.

The venture has also paid dividends for the 68-year-old former detective and athletics coach. Hickman’s personal wealth is estimated at about $400 million, partly based on his shareholding in the company.

Hickman and John Ryder, based in Christchurch, founded Ryman in 1984 with $10,000 each, and by 1999 listed it on the stock exchange.

Now it is the country’s largest retirement village operator with 32 villages in New Zealand and Australia, home to 10,600 residents and employing 4700 staff.

Hickman and Ryder ran the company until the mid-2000s but have both built other property empires, with Ryder developing commercial property and retirement villages, and Hickman owning two-thirds of a business park near Christchurch airport.

He and his wife Joanna are also well known for their owner- ship of Valachi Downs Stud near Matamata, and its famous race mare Silent Achiever.

In 2016 he was made an Officer of the Order of Merit, recognising his services to charities.

He said he left the company in good heart after 34 years, although he and his family intended to remain long-term shareholders.

‘‘I’d like to thank the many thousands of residents and their families as well as loyal shareholders who have put their trust in us, along with the great team at Ryman who have made the company a success. I’ve been lucky enough to work with many great people.’’