Use your home to fund retirement

PARTIAL SOLUTION: FUNDING YOUR GOLDEN YEARS A PROBLEM But how will you manage it?

Concerns about not being able to generate enough income from retirement savings are one of the biggest causes of financial stress for South African investors. Nobody wants to be dependent on the government or become a burden to their children.

One thing many people in this country have in their favour, however, is physical property.

What this means is that upon reaching retirement many people may find that while their pension savings may have fallen short of what they need, they have significant additional value in their homes.

In some cases, where a house has been owned for many years, the asset they are living in may be worth more than all their other assets combined.

Freeing up this value potentially offers at least a partial solution to their retirement funding problem. But it is one that must be very carefully considered because, of course, they still need somewhere to live.

Mark Lapedus, divisional director for product development at Liberty, says that anyone in this position needs to consider what their options might be.

“You could downsize by selling your home, buying something cheaper and using the difference to live off,” he says.

“Or you could sell the property and find something to rent, which frees you up from the responsibility of being a property owner.

“Which of these you choose is probably going to depend on how short you are in terms of retirement capital. Some people may even transition from one to the other.”

Anyone who is going to sell their property to fund their retirement must, however, act prudently.

For someone who has not saved at all and the only asset they have is their home, this may be more difficult, but this is a process that should be carefully managed.

This is because, just like any other asset, property values do not move in a straight line. Sellers must consider the market and whether they are getting full value for their asset.

The last thing anyone would want is to realise far less than they could have because they sold at the wrong time.

“Deciding when to sell, for how much, and what to do with the proceeds can all be very difficult decisions,” says Lapedus.

“But good financial advice can go a long way to making that process easier and ensuring that you get the most out of the assets you have.”