Agony Aunt: Retirement poverty
Dear Janine
Some years ago due to a business collapse we lost everything, including our house. We were in our late 50s. We had worked hard, lived modestly and our business was supposed to provide for our retirement while living in a freehold home.
Ten years later we are still renting a very modest place at $435 a week and working four years after many people retire. We will have saved about $125,000 by the time we stop working in two years. Our only income will be National Super and there's no way we can maintain our current rent.
What bank will provide mortgage finance to people in their early 70s? You have previously stated you are "not the biggest fan of older people renting" but what alternative can you suggest for us? And how much National Super can we afford to spend on rent?
There is certainly no retirement "fun" for us, as we imagine you will concede.
ANSWER
This is a fabulous position and an utter pickle all at once. Your boat sunk earlier in life, but with hard work and determination you have $125,000. For most retirees there is room for fun with that amount of money. Yet the pickle is three-fold. First, you don't own a home and are paying over $22,000 a year in rent. Second, income from Superannuation is a maximum of $29,962. Third, the accommodation supplement is means tested and you don't qualify for 125,000 reasons. You've responsibly re-launched your boat, only to find that the government will force you to use most of your savings (all but $16,200), before you get help. That's obviously quite reasonable, but still feels like a kick. If you stay in the current rental property, your landlord will vacuum those savings in 5 years. The accommodation supplement isn't a silver bullet either. I'm shocked by the enormity of it – sarcasm intended - $125 a week in Wellington and $75 a week in Christchurch, if you have no savings or other assets. You never mentioned where you live, but the gent on the phone at Services for Seniors (Ministry of Social Development), had his doubts a retiree in Christchurch would pay over $400 a week. Cantabrians will choke on their Earl Grey. It seems government policy hasn't caught up with reality. It's tempting to suggest a large European tour, followed by the purchase of a BMW as your private motor vehicle to deplete your assets. But at the end of the splurge, you'll only get somewhere between $75 and $125 a week to help with rent. The reason I'm not a fan of retirees renting is we're all living longer and I fear the scenario of a 25-year rent trap. Plus there are social reasons. Massey University's 2014 Longitudinal Study of Aging shows a correlation between asset accumulation and well-being. In terms of housing, only 7 percent of people aged 50 to 87 are renting. You should not let this have any bearing on you. Lets move forward and just accept what we've got to work with.
Downsizing: Tough questions first. Why are you renting a house for $435 a week? I know it's modest, but there are units available for $250 a week, even in big cities. Less if you move to the outskirts. Is there an element of pride? Many of us would find it a difficult pill to swallow. Look long and hard at each other – it's $10,000 a year. You might find the housing is small and shabby, but landlords will jump at the opportunity to secure a long-term older couple that will garden and paint.
Relocate or re-locatable: Are you tied to your current location due to family? Maybe Kaitaia and Clutha would be nothing short of madness, but houses can be less than $125,000. My point is to be creative. One of the most interesting I've seen is a company called Leisurebuilt. They produce a brand-new 2-bed unit for $110,000 delivered and plumbed-in to a site. The creative part is you can own these in campgrounds. This week I viewed their work at Tahunanui in Nelson, but they operate in many areas. The units were right by the water and rather trendy with decks and pergolas. Larger varieties are $140,000 and small bed-sit sizes are $60,000-$80,000. Their website www.leisurebuilt.co.nz doesn't quite do justice to how good they look. I noticed a number of older couples in residence and the lifestyle looked brilliant. Many seemed to own their own campervan for add-on fun travelling New Zealand. As you don't own the land, the campground charges $135 a week for a couple. You may be eligible for the accommodation supplement to help with this. Alternatively, does anyone in your family have a large section where you could pop a unit? Up to the age of 75 some banks will allow a small mortgage to top up a purchase.
Cohabitate: Would a family member consider moving into a home with a separate 'granny-flat'? You could agree a price that still left you with some savings. Perhaps that person should inherit your contribution for being prepared to do this. Take legal advice on this matter. Would you consider a unit in a retirement village? These are usually over $200,000, but older ones in cheaper areas are less. Trademe lists many.
Keep working: you say you will give up working in two years. Why not keep going with something flexible and part time? Gardening for elderly people perhaps. You have business experience. Get your thinking caps on.
Health, fitness, clubs and happiness: retirement fun is going to come down to your own attitude of mind. Get fit, join clubs, volunteer and throw large pot-luck dinner parties. Toss away the social norms of being 70 years old with three vacant bedrooms. You can make yourselves the most fun, busy people to be around and true friends will never judge you on the size of your home or bank balance.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.