Home Uncategorised Is a mortgage-free home the key to a comfy retirement?

Is a mortgage-free home the key to a comfy retirement?

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– Ashley Church writes;

For as long as I can remember there’s been a view, held by many kiwis, that paying off the mortgage on your home is the key to a comfortable retirement. It’s an entirely understandable viewpoint. Some of the biggest costs that we encounter during our working lives – mortgage payments, house and contents insurance, rates, maintenance and the ongoing provision of utilities – are all wrapped up in the business of putting a roof over our heads. So it comes as no surprise that we would view the elimination of a mortgage, and the consequent freeing up of all of the money we’ve devoted to those payments, as the secret to retirement success.

But is it enough? In a word – no.

Certainly, paying off your mortgage is a great step toward ensuring your retirement security – but it’s only the start of what should be a much more detailed approach to this important phase of your life. Yes, being mortgage free means that your housing expenses will reduce – but so will your income if you don’t make any additional provision for yourself. Currently, State-funded Superannuation will pay you $411 per week (or $21,380 per annum) if you’re single; $316 per week ($16,446 per annum) if you’re in a relationship where the other party doesn’t qualify; and $633 per week ($32,892 per annum) if you’re a qualifying couple. These payments are ‘indexed’ to wages – which means that the value of Super, going forward, will remain consistent in real terms – but I doubt many people would regard these payments as the basis of a ‘comfortable’ retirement lifestyle – even with a mortgage free home.

So how much ‘should’ you have put aside to retire on? I’d suggest that the bare minimum requirement is to own your own home and have enough put aside to fund your lifestyle for around 25 years when added to what the Government pays in Superannuation. That sum will differ for each of us depending on our expectations – but as a general rule (and assuming you’ll retire with a mortgage free home) you’ll probably want it to be enough to be able to draw around 70% of what you were earning on retirement. The median NZ household income is currently around $90k per annum – which means a couple will need a capital sum of $750,000 ($1.575 million minus Superannuation) to live in a style which would be commensurate with how they lived during their working life. (to those who argue that this capital sum would earn interest over that 25 years – yes it would, but that interest would be largely offset by the effect of inflation – so the numbers stand).

$750k is a scary number. It will be significantly more than what most of us probably thought we needed to put aside to be comfortable – and it’s certainly not my intention to alarm you – but I want to provide a reality check, particularly for younger people who still have the time to prepare and plan.

So, what can you do?

Start saving early. Start contributing to Kiwisaver as soon as you start working – and contribute as much as you can afford. This should be drilled into our kids in primary school. 

Buy a home. I know this is easier said than done – but buying a home should be the aspiration of every New Zealander. It’ll provide you with an asset on which to fund your lifestyle and changes while you’re working – and paying it off, prior to retirement, will significantly reduce your cost of living in your twilight years. Additionally (and frighteningly) for those who don’t retire with a mortgage free home – the amount you’ll need to have saved by retirement will be even higher because housing costs will be an ongoing consideration.

Invest in something. The hundreds of thousands of kiwis who own over 450,000 rental properties aren’t just providing a home for other New Zealanders – they’re also ensuring that they’re prepared for retirement. And if property investment isn’t your thing – find something else that you can get passionate about. I don’t care what it is – houses, business ownership, or shares – just pick something, learn everything you can about it, and start building a nest egg.

Obviously the numbers I’ve provided here are very generalised – so to get a better idea of exactly how much you need to have saved for your retirement – based on your age, income, lifestyle and circumstances = go to www.sorted.org.nz and punch in your numbers.

30 COMMENTS

  1. If you haven’t got your finances sorted and a decent nest egg before your retirement then life is going to be fairly basic with no extras and probably a little miserable for you, particularly if you like to splash the cash enjoying yourself. As I’ve never been on a benefit I do not know the ins and outs of eligibility gained via the Community Services card. I have heard others complaining about those who didn’t manage their money well in earlier years and now know how to take advantage of every eligibility gained via the retirement benefit system.

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  2. A good post with sound advice worth following in my experience. Key for me is avoiding spending on worthless crap if you wish to accumulate some funds or acquire good assets.

    Having a government that butts out of the lives and businesses of citizens, reduces taxation to a level sufficient to maintain only essential public good services would assist all to improve. Reducing the level of benefit dependence and making a focus on personal responsibility would be a positive step towards improving wellbeing for all.

    I have just looked at a list of the PGF handouts for Hawke’s Bay. Not having to fund that list; let such projects be funded on their merits, not from the taxpayer, would also help my wellbeing.

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  3. My adult children will only have a reasonably comfortable living in retirement due to a couple of inheritance trusts I have set up for them.

    I have invested well so I can live comfortably in retirement. The price of petrol that my 6 litre V8 uses does not worry me.

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  4. Having a mortgage-free property was key to us retiring before we hit our Gold-card years… but we spent all of our working-life/child-rearing years paying off the mortgage and doing-up our old dunger.

    The other factors that have worked in our favour are 1. we retired to the provinces… Housing is considerably cheaper than in Wellington…Cost of travel/parking fees/ fruit & veges/ rates much less than in the city. (Electricity is more).
    We don’t have to dress smart for work now… so minimum investment in clothes that rarely get worn…

    2. Our kids are off our hands… Teenage years were costly… even though they made pin money through baby-sitting/part-time work.

    3. Hubby & I have stayed together ….. The finances of my friends that have been through separations are often crap.

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    • Similar to us Maggy. It’s nice to be young and have life ahead of you. We certainly put the hard work in and now showing the results. I’m preferring this end of life with the mortgage paid off and without any financial concerns. Life is sweet.

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    • Relationship breakups are very costly as you halve what you both have if you are lucky. If it happens more than once well its a slippery slide to survive. It can be done with a debt free house, but you do need a bit extra to call on in times of breakdowns teeth etc. You can get extra from the GRI if you have a mortgage I was asked if I had a mortgage as they could assist I don’t so can’t tell you how much it is.

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  5. I had a mortgage on a place in California in my 20’s, and would be paid for by now if we’d decided to settle in the USA. We chose to come back to NZ and raise kids, on one income so my wife could stay at home. The sacrifice is we’re still renting years after returning here. Our choice, no regrets. At least our place is secure and will never be sold as long as the landlord is alive, and it’s cheap enough we are saving for a deposit on our own place. Yes waikatogirl, life is sweet!

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  6. Even with say $750k in the Bank at 3% only provides a total gross income inc state super of $55,000, enough for a reasonable lifestyle providing no major unexpected bills for house mtce, replacement car etc. Future returns & inflation however are uncertain so some inflation adjusting investments are a useful part of investment strategy.

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  7. When do you want to retire?
    Not at 65. you will die young.
    10 Years ago a friend asked me what income we needed when we retire. My answer $100k
    Still right.
    Its not your assets that matter but your income and preferably an asset that grows in value.
    Nearly there and 2 years to go.
    Keep on keeping on.

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  8. Freethinker, if someone invests at 3% I cannot see how they got $750k plus a mortgage free home. I have about one in the share market and roughly half in property. Some of the property is shares in syndicated property with Silverfin.

    Silverfin will be hosting investor presentation evenings around the country to present the Inghams Portfolio Scheme and answer any questions you may have. The return is 8.25%.

    There is a presentation on in Hamilton on 20 June at 5 pm. I have $500k invested with them in other properties and looking at investing in the Inghams Portfolio Scheme.

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    • I was assuming at retirement you would be conservative for security having spent a lifetime of taking sufficient prudent risk to accumulate the $750k.

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  9. If you own your own home outright and live in it, and mean to stay in it, it matters little what its market value does. Its real value is in the cost it saves you – i.e. a mortgage. Simplistic I know, but an important point.

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  10. Anyway, if we have miscalculated our retirement funds or live too long, then we’ve got friendly folks who supply the destitute of Gizzy with dinner (down at the Cop-shop), a choice of 3 bridges to sleep under, and an endless supply of 2nd-hand clothing shops….. should be sweet.

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    • Yeah but you have forgotten the best choice. The government will supply you with a house. Cindy said so. I saw her on TV say it. She wasn’t lying again was she?

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  11. Don’t cancel your underbridge accommodation bookings! Instance:

    …..”I believe that it is possible to exist in politics without lying and by telling the truth.”…..

    Jacinda Ardern NewsHub leaders debate 2017

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      • A guide to Jacinda-speak:

        Believe me. (I’m lying)

        Well, I mean….. (I’m lying & stalling for time while I recall the reason as to why I’m lying)

        To the best of my recollection. (I can’t remember what my last lie about the subject was)

        Let me be absolutely clear. (I couldn’t lie straight in bed)

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        • Your comment lost all credibility when you didn’t use Cindy speak.
          If you had of used absoludley, means, believded me, it would have made sense.

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      • She certainly knows mine. Hubby has mellowed over the years and so now I can even win the odd discussion. Or is it just that I know when he is speaking out of the wrong end of his digestive tract. ?

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  12. I learned to shut my mouth a while back- my Mrs is NOT interested in politics! That’s why i haunt this blog 🙂

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  13. These “retirement financial consultant experts” don’t live in the real world.
    Who can have their home morgae free and 750 K in the bank at 65?
    Not many normal people.

    They all forget to mention kiwisaver.
    If a guy guy starts work and joins kiwisaver, how much will he have saved u by 65? (assuming he does not take it out for a first home)

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  14. Hey Ashley!
    Maybe you would be better off if you had $200K in the bank (not 750K) and did not worry about 3% in the bank interest. but took out 10K a year for living costs, car, travel, house maintenance etc.
    That would last 20 years by which time you would be 85 and either dead or comatose or unable to spend much anyway.

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