Once upon a time, arriving at retirement with sufficient funds in the bank didn’t require too much in the way of financial nous.
Leave school, get a job, work hard, practice a bit of delayed gratification, buy a house, pay it off over 30 years, save for a bit and then settle back to enjoy retirement.
But times have changed.
Part of that change is in the housing market. Up until the late 1980s, buying an average house in New Zealand cost two to three times the average household income. Fast forward to 2019 and that same average house will cost 6.5 times the average income and if you live in Auckland, make that 9 times!
As a result, people are buying homes later – if at all, and paying them off later – if at all. Even those who manage to clear their home’s debt before retirement often then find they can’t save enough, or fast enough, to fund their retirement. Longer life expectancies can also mean the total bill for a comfortable retirement for the duration of your life is a large one!
At enableMe, we encounter many people who are 50 or 55 and freaking out as they realise the time available to sort retirement is running short. That sprint to the finish line of your working life is the most arduous when you still have debt to clear, because that’s soaking up cash and putting a handbrake on your savings and capacity to utilise other wealth creation options.
Getting mortgage-free is an important part of your retirement plan because it lowers your outgoings considerably, but it’s only one part, because ultimately, you can’t eat your house! The problem is, the usual plan of downsizing the family home in order to free up some capital can prove to be problematic -and stressful – if it releases less capital than you’d hoped.
The over-65 age bracket is burgeoning section of the population, so there’s plenty of competition for that smaller, low-maintenance home to downsize to. That can mean you need to move to a cheaper region to release enough equity – which may be unappealing when you want to be close to friends, kids, or grandkids. I’ve had plenty of clients make that decision, only to end up wanting to move back, into a more expensive market, a few years later.
The point of telling you this isn’t to terrify or overwhelm you – but to simply encourage you to start having realistic conversations about what you will need in your retirement, and whether you’re on track to have it.
If you’re not on track – well, you’re in good company, most people aren’t!
But of all the methods to address your retirement – the riskiest strategy of all is to do nothing! The key is to take action, and take action soon, so we can assess your options, put in place a strategy to close that yawning gap in your savings and put you on track to enjoy your golden years.
Hannah McQueen is a chartered accountant fellow, author, Authorised Financial Advisor, and founder of enableMe – Financial Personal Trainers. Find tickets to her seminar ‘How to Get Mortgage-Free and Retirement Ready in 10 years or less’ here