Amy Po-Ching is a financial planner for Guardian Financial Planning.
Asset-rich, cash-poor. Is it a concept that feels worryingly familiar?
Retirement Commission research indicates around 65% of households over 65 own their home outright.
Yet about a quarter of older households have a low retirement income alongside high home equity.
Thinking about how you treat the family home as part
of your retirement plan is obviously important.
Your home is often your biggest asset, but deciding what role it should play in retirement can be more complicated than other parts of your portfolio.
Typically, your KiwiSaver balance does one thing: it funds your retirement. Your home does two.
‘Try and be flexible’
It’s a store of equity that can also help pay for the life you live, but you’ll still need a roof over your head, one way or the other.
And that’s before you consider your home is probably the one asset that comes with a huge amount of family memories and emotion.
Tom Hartmann, personal finance lead for Te Ara Ahunga Ora Retirement Commission, says the starting point is to get good personalised financial advice and give the equity in your home a clear role within your financial plan.
That means considering how much you might want to use in the short term, how much you may wish to access further down the track, and where and how you want to live.
A key consideration, he adds, is to also be prepared for your plans to change.
An example of that might be the fairly common plan to sell up and move out of a main centre to a regional or more rural location where property and cost of living can be cheaper, freeing up some of that precious equity.
However, by the time you reach retirement, your priorities and needs may have changed.
You may want to be close to a good range of health services, or choose to live near children and grandchildren or the social networks that matter to you.
All of that may change how much equity you can release from your home, Hartmann says.
“The key is to try and be flexible in your planning.”
For those still making mortgage payments when they retire, it may be worth using KiwiSaver to clear that debt to reduce ongoing regular costs, Hartmann says.
“You need a plan for managing any ongoing regular costs, not just mortgage payment. There are also rates and insurance to think about.
“It’s another factor to consider when looking at the home as an asset; it never really stops being a cost.”
Unlocking equity
Products such as reverse mortgages and home reversion schemes, which involve selling a portion of your home, can be useful tools for the asset-rich, cash-poor as they enter or near retirement, Hartmann says.
“They are definitely levers to pull.
“Those options do come with costs, so it’s important to have a really good understanding of how each one works and get good financial and legal advice, but for some people they do make sense.”
The cost of inflation
If you’ve been paying attention, with slightly white knuckles, to recent inflation announcements from the Reserve Bank and the United States, and want a better understanding of how it can affect your investments, the Craig’s Investment On Point podcast episode: Do you know what your investments are really earning? offers some straightforward, useful information.
My retirement
What are the experts thinking about as they plan for their own retirement? For the first in a new Q&A series, we chatted to Amy Po-Ching, financial planner for Guardian Financial Planning.
What concerns you most about your financial preparedness for retirement, and what are you doing about it?
My biggest concern isn’t necessarily having enough money, but having the freedom to choose when and how I work. As a solo mum with young children, I’m conscious of balancing enjoying life today with building financial security for tomorrow. Having a clear financial plan helps me do both.
What do you think people most underestimate about the cost of retirement, and how can they prepare?
Just how expensive retirement can be! For most people, KiwiSaver alone won’t be enough. Start by thinking about your ideal retirement, then work out what that lifestyle will cost each year. Multiply that by the 25 or 30 years you could spend in retirement, and you quickly realise just how much money you may need.
What financial question about retirement do you think more people should be asking, but aren’t?
Rather than asking, “How much money do I need to retire?”, I’d love more people to ask, “What do I actually want my retirement to look like?” Money is simply the tool to make that life possible. Once you’re clear on what you want, you can work out what it will cost and build a financial strategy to make it happen.
What’s your biggest retirement concern?
Is there an aspect of retirement planning you’d like to know more about?
Do you have questions about KiwiSaver, NZ Super, estate and succession planning, investments, insurance or any other topic tied to planning a robust, resilient and relaxing retirement lifestyle?
Let us know at kerri@businessdesk.co.nz.
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