What to do if you think you’ll never own a home

Five things to do now if you think you’ll never own a home. File Photo.

A growing number of New Zealanders are facing the prospect of renting in retirement.

Retirement Commission research last year found a third of people aged 55 to 64 did not own their own homes, nor did 20 per cent of those aged over 65.

It says the number of renting retirees was expected to increase to 600,000 by 2048.

But what do you need to know if you think you might still be forking out to a landlord when you’re no longer working?

Check whether you really can’t buy

When a range of people were asked what advice they could give to people who expected to be lifelong renters, the first question that kept coming back was: Are they sure?

This may be infuriating to hear if you’re a young person despairing at the prospect of saving (at least) a six-figure sum to get in the door of your own property.

But the experts want you to make sure that you’ve exhausted every avenue to get in the door of your own property.

Economist Gareth Kiernan says there was good reason for this.

“If you have $200,000 and you buy a $1 million house, let’s say house prices double in 20 years - being conservative - you’re at retirement age, you’ve leveraged yourself and you’ve borrowed to buy this house and you’ve suddenly got a much bigger asset that you otherwise wouldn’t have had.

“You’ve used someone else’s money and it’s worth $2m and all you put in was $200,000.

“You could find other investments that would double your money but you’d just go from $200,000 to $400,000.”

He says over time rent costs might also have doubled but mortgage payments would have stayed roughly the same, interest rates permitting.

Even Sam Stubbs, founder of KiwiSaver, says buying the most expensive house you could afford and paying it off as quickly as possible, was the best financial decision most people could make.

“If you can do that that’s what you should do.”

Tom Hartmann, personal finance lead at the Retirement Commission, says people could think about things like whether they could aim for a smaller apartment, or even a tiny house.

“You might need to rejig your expectations for what buying a house means.

“There are in-between options.

“It doesn’t have to be extreme.”

Sometimes, a mortgage broker can be a good first step to check on what might be possible.

Consider buying with someone else

Some people bought with a group of people, Tom says, which made it more affordable.

“Two incomes are better than one and four incomes can be even better.

“What’s really achievable?

“People tend to underestimate how much they can achieve in the long term.

“They overestimate what they can achieve in the short term - like taking on too much debt - but the opposite occurs when it comes to long-term thinking.”

Ok, you really can’t: Check what you are on track for

Tom says people could use online calculators, such as at Sorted, to see what they were likely to have saved at retirement in KiwiSaver and other investments.

“We do know that people are renting in retirement all the time and to make up for the added cost you have to save and invest aggressively on the way up.

“If you have decades ahead of you that can give you an advantage.

“It comes down to how much can you optimise your savings rate and how much you can optimise your investing rate.”

“Overall, the principle is that money gives you options.

“That’s why it comes back to that savings and investing rate.

“You’ll end up having more options by starting early and taking advantage of compounding.”

Compounding refers to the process of returns being made on returns, over time.

If you have a while until you need the money, compounding can mean you end up with a much larger final balance due to compounding, rather than the amounts you’ve invested yourself.

Claire Matthews, at Massey University, conducts research on retirement spending.

She found that a two-person household living a “no frills” lifestyle in a main city would need $117,500 each saved, not including rent, to cover expenses this year.

“There is an argument that being in rental accommodation in retirement is not a disadvantage, but that is predicated on an expectation they have lower housing costs prior to retirement and therefore save more which offsets the higher costs in retirement.”

Double down on KiwiSaver and other investments

Sam says people who thought they would be renting for the rest of their lives would need a plan for how they would pay the rent when they had no income.

“You have to have assets and the most obvious, easy and in some cases low-cost way to do that is KiwiSaver.

“It’s simple, the Government is giving you free money, your employer is giving you money - the easiest way is to get serious about KiwiSaver.

“Don’t save the minimum, see if you can save 8 per cent to 10 per cent, if you can do that from the age of 30 you’re probably going to be financially secure when you retire whether you’re renting or not because you will be able to afford to pay the rent and pay the bills.

“That’s easily the simplest way of thinking about it."

He says people did not need to push up their contribution rate in one hit.

“Look at putting all your pay rises into KiwiSaver or increasing your contribution by 1 per cent or 2 per cent a year for four years.

“The great thing about that is set and forget.

“You won’t see that money, you’ll get on with living and spending what you have.

“Also, get into the right fund.

“There’s a hell of a lot of 30-year-olds in the wrong fund.

“They’re in conservative funds - you are actually giving up a fortune by being in the wrong fund.

“The difference could be tens if not hundreds of thousands of dollars.

“Get on to the Sorted website, make sure you’re in the right fund, get contributions as high as you can comfortably afford and try to increase them over time and let KiwiSaver work for you.”

Find out what help is available

Retirement adviser Liz Koh says the most important issue for people who hit retirement without their own house was to find affordable, long-term accommodation.

“There are a number of options including housing provided by local government or charitable organisations, living with family, or sharing accommodation with others.

“It’s also important to access any financial assistance that is available for accommodation costs.

“Unfortunately people who don’t own a house but have a good amount of savings are likely to be ineligible for accommodation supplements.

“Working past the age of 65 either full-time or part-time will help to cover living costs.

“Maintaining good health and energy is important for maintaining the ability to keep working.

“Consideration should also be given to moving to a geographic location where rents and living costs are lower.”

Financial coach Shula Newland says people would sometimes need to turn to their kids for help.

“If they don’t own a home, chances are they haven’t got much other money behind them. ... they may need support from their children - each child could top them up a little each week, which would mean they might be able to afford to rent.

“Perhaps an inheritance will come from a parent.

“Perhaps one of their children can put a minor dwelling on the property.

“Perhaps they can live in a bus….

“It is important that it is never to late to have a plan for your retirement, we see a lot of people put their head in the sand because of the large figures that are bandied about.

“But it is important to get help with their money sooner rather than later, so at least there will be something for retirement.”

- Susan Edmunds/Stuff

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