Here’s a Netflix-pilot episode that never came to be.
Imagine the scene of a retired person living alone in government-funded housing, aka the ‘council flats’. It’s where people who can’t afford much go when they’re old.
Like the 30-square metre dwelling with poor ventilation I can still remember from almost 30 years ago. The inside of the windows are thick with a thin film of nicotine blended with moisture from over-boiled pork and potatoes still on the stove.
It’s 1996 and the sounds of Leighton Smith talkback radio fill the air, interrupted only by irritable grunts of agreement from the sole occupant.
It fills me with dread to this day, the idea that even ‘good enough’ retirement goals like becoming mortgage-free, can be a dangerous trap.
This isn’t a Netflix series. I was somehow here in my early 20’s, cleaning windows, in state-funded retirement communities on Auckland’s North Shore. $6 for the outside and an additional $4 for the inside. I was often the only ‘outside person’ these people would see for weeks. It was a great part-time gig, and I’m motivated to this day by the fear of finding myself in that very same predicament.
It feels me with dread, the idea that even a ‘good enough’ retirement goal like becoming mortgage-free, could result in a form of retirement-poverty tomorrow.
If you have 20 years or more to retire, there’s nothing wrong with fearing the ‘good enough’- monster. ‘Good-enough’ strategies from yesterday, like aiming exclusively at being mortgage free, are enough for a future that’s going to be more expensive.
Here’s the [controversial] idea: Being mortgage-free at time of retirement, isn’t enough. It’s an amazing achievement still! And it’s a ‘nice-to-have’ problem many would kill for, but unfortunately, if we can, we now need to aim higher.
Compared to the equity locked in their home, many retirees don’t have much in the way of savings to fund a life with choices.
If you were debt-free living in your own home, could you afford to live off of $400-500 per week?
Consider the following sobering stats:
- 40% of people aged 65 and over have virtually no other income besides NZ superannuation.
- Almost 1 in 3 people don’t think they have enough to retire at 65.
Mortgage-free homeowners, unless there’s other investments building up, might find themselves living in an equity-rich, yet cash-poor prison.
How will they fund the hip surgery without medical insurance? How can they help their kids, without first dying? Should they stick it out, downgrade, move to a unit or join forces with the kids?
It’s the modern day hit series Prison Break: Retirement Edition
“A retiree engineers his way into a retirement village he once designed. In order to achieve financial success for his brother, he must first break free from the equity-rich yet cash-poor prison: Will he buy, rent, or move in with family?”
But seriously, how else do retirees with plenty of home equity, actually benefit from it while they’re still alive?
They take out a reverse mortgage: It’s often seen as the best of the less desirable options. True, there’s the creeping cost of compound interest adding up in the background like a fuse to a bomb.. but then again, there’s no real estate commission, and, there’s no need to move on from a home you enjoy. It’s inherently unjust that retirees are forced into the ‘money or the home’ dilemma like this though, forced into choosing between life, and desecration of their hard-earned, mortgage-free ideals.
If you’re paying down your mortgage aggressively now, consider using ‘revolving line of credit’ arrangements with the bank. Retain access to credit when you’re older*. ‘Poor-Man’ Reverse Mortgages are a more affordable type of revolving line of credit, that can be re-structured as you go on lower rates.
Apart from selling the home, and taking on board a compounding mortgage balance with a floating interest rate, surely there’s a better solution?
The French have a concept known as “Viager” (vee-ah-ZHAY). Instead of taking on board debt, as in the case with reverse-mortgages, retirees can instead sell a portion of their home in exchange for regular payments, known as Rente Viagère (rahnt vee-ah-ZHAIR).
Sounds great, right? Do we have these in New Zealand?
Learn more by listening to the recent discussion I had with Ralph Stewart, from Lifetime Retirement Income about their equity-based retirement income solution.
*There are a lot of tricky areas here to watch out for, but if it’s of interest, get in touch. Reach out here for our refinancing services.
