Did you know that 13% of those over 65 still have a mortgage on their home? What’s more, that number is predicted to increase to 24% by 2036.
That means around one in four homeowners will still owe money on their houses at retirement age. That’s a serious problem because the amount of NZ Superannuation that we receive is based on not paying for housing – it assumes we all own our properties freehold at age 65 and aren’t paying rent.
In the meantime, people who do own homes are finding their houses are earning more than they are. Apparently it takes a salary of $167,000 a year to be on par with the tax-free capital gains experienced by houses in Queenstown. It’s lower in Auckland, at just over $90,000, but that’s still a lot of money.
When you put those two stories together, what’s the obvious conclusion? Investing in property is a smart, effective way to pay for your retirement. As the writer of one of those articles put it: “The kiwi property party will ebb and flow, but the tax-free carrot provides an irresistible attraction over the long term.”
Where will your money come from in retirement? What will your lifestyle look like? If you can buy even one decent rental property, you’re putting yourself in a stronger position immediately. You have options: you can sell, put the money into an investment fund and use the returns for income. Or you can keep the property and use the rental income to fund your retirement.
The more properties you have, the more options you have – you can sell one to pay off the debt on another one. We have one client who plans to leave all his rentals to his children, mortgages and all. They are all cashflow positive and structured into trusts for each child.
NZ Superannuation is great and it’s almost impossible to imagine it not being there. But it’s not enough to have a comfortable lifestyle in retirement. If you can leverage your current earning potential into property, you can make the property work for you, while you enjoy some well-deserved relaxation.