Retirement comes with many choices, but requires making some tough decisions. Forever Homes shines a light on the different lifestyle options, and the implications of each, including those outside the box. Read more at homed.co.nz.
Kilian de Lacy lived in a convent for 30 years, which made it impossible to start saving early but did teach her to enjoy life without a lot of stuff.
De Lacy, 78, and her husband, Bruce Twidle, 81, live in their own home in Levin but are still paying off a mortgage and don’t have much of a nest egg.
On the bright side, they have a brand new eco house and enough money to cover their costs. On the downside, they can’t afford to visit relatives overseas – although at present that’s out of reach anyway.
De Lacy left the convent in her late 40s, got a job, and three years later met her husband.
They bought their first home, a flat in Wellington, with some help from her father. They paid that back quickly, then bought a larger house in Porirua, where they lived for 18 years.
Four years ago they realised it was time to downsize, and moved to Levin where they found a cheap section to put a modular house on.
The couple bought an Ecotech house which cost $227,000, and borrowed an extra $70,000 to finish it, including building a deck and pathways.
“In the three years since then we’ve paid over $40,000 back, but we’re living on our pension and Bruce has a small GSF [Government Superannuation Fund] which we get paid every 28 days,” she said.
“We’ve got a revolving credit from the bank and I think we’ve got about $20,000 to pay off, so we’re not on the bones of our bum.
“We can pay our insurance, we’ve got a little car which we can pay the maintenance and everything on, so we can pay all our needs, and we have some to give to charity, but we don’t have huge amounts in the bank.”
They hoped to pay off the loan in about 18 months.
“We’re lucky, Levin’s prices are going up now since we came, so we were fortunate we got here when the prices were still low.”
The decision to downsize could be hard, she said, but people had to face facts.
“What’s the point of having a huge house if there are two of you and one dies, the other one’s left rattling around in a great big house, it’s silly.”
Finance advisor Martin Hawes said even if people have no savings, owning a house meant they had options such as downsizing.
“A lot of people are very resistant to doing that, though, because as they get into retirement they’re very accustomed to a house, they know where the light switches are, they know how the house works.”
Moving, across town or to a different town, also often meant the loss of social networks.
Another option was to work a little..
“If you could make another $10,000 a year or something that will make all the difference to the lifestyle you’ve got – you obviously won’t be able to do it for ever, but at least in the early years of retirement,” Hawes said.
Another option for people was a reverse mortgage, primarily offered in New Zealand by Heartland Bank, which allowed people to borrow against their houses.
Heartland head of retail Andrew Ford said the reverse mortgage market was small, but there was growing demand as house prices continue rising, people were living longer, and interest rates remained at record lows.
Home renovation was the number one use, Ford said, but people also wanted to release cash for debt consolidation, such as credit cards or the last of a mortgage; help with paying bills; and travel.
Interest accrues and compounds while the loan is not being repaid, so the amount that finally falls due could be a lot bigger than what was borrowed.
Heartland does turn people down, as it has “conservative criteria” and the house has to be in good condition, he said.
“The maximum we’ll lend a 70-year-old is 25 per cent of the home value, so if someone requires more than that we can’t help them.”
Retirement Commissioner Jane Wrightson said older Kiwis were increasingly asset rich and cash poor.
“People think that saving off the house is saving, or investment, and to a degree that’s true… The risk of course is it’s the eggs in one basket strategy which nobody ever thinks is a good idea.”
Downsizing to free up cash had worked relatively well, but it was still a risk given the potential for market fluctuations and a shortage of quality small houses.
Reverse mortgages could be a good option, but people needed to take careful advice and talk to the whānau, she said.
The core problem is that New Zealanders don’t save enough.
“For those people who aren’t on the breadline it’s true that you can generally save some more if you put your mind to it.”