Hoping that downsizing will provide all the retirement finances you need? Unfortunately, it may only buy you three years. You need other easily accessible financial options, like Britannia’s Lifetime Income Fund.

On the surface, it can seem that selling the family home when you retire is an excellent idea. The money you get from the sale will pay off whatever remains of the mortgage, you can pay for a small house and after the transfer fees, you’ll have a sweet, little nest egg.

Except that it doesn’t always work out that way.

Here are 3 reasons why downsizing may not be the best option
  1. Selling, and buying, in a property market boom

    If you sell your house during a boom in the market you could make considerably more than you planned. Which is wonderful. Unfortunately, you’re probably going to have to buy a house in that same boom. Which is not so wonderful. Not only will your spend be higher, but your transfer fees, and any other fees, will be higher as well.

    If you’re prepared to wait until the next property market price fall, then you could make a killing. But you need somewhere to live in the meantime, and unless there’s income coming in, you’ll have to use the money from the sale of your house to pay rent.

  2. The emotional impact of downsizing can be difficult

    Saying you’re going to downsize and doing so are two quite different things. Unless you have moved regularly during your lifetime, the emotional impact of selling a house in which your children grew up, graduated from college or university, got married, brought their children to can be hard. The birthday celebrations, Christmases, school play rehearsals, watching rugby around the TV, the breakfasts, dinners, Saturday barbeques with friends…it’s not just a house you’re giving to complete strangers. It’s a lifetime of memories. You may also have become accustomed to the space and the garden. A garden you nurtured and cultivated for decades.

    The new place, the downsize dream, will be smaller. There may not even be a garden. On the plus side, the house, or apartment, will be easier to maintain.

    The house may not be all that’s new. The new place, as we’ve said, will be smaller, so your furniture may not fit. You may have to sell it all and buy new stuff. While you may not get a lot for your twenty-year-old furniture, you will have to pay top dollar for modern replacements.

    It’s unlikely that you will live in the same area so now you have to factor in the cost of moving to a new area, making new friends, not seeing the usual friendly faces at the supermarket, the local library, the hardware store, or the vet.

    People vastly underestimate the emotional impact downsizing will have on them.

    Suddenly, the amount of money you’d planned to see you through your retirement has dwindled drastically and it doesn’t cover the other ‘downsizing’ you’ll have to do either.

  3. 60 is the new 40!

    People are living much longer now than they used to thanks to better healthcare, better food, and a more exercise-orientated lifestyle that most people now live. With a retirement age of 65 but with people increasingly living, on average, to 82 or beyond, downsizing is by no means a definitive financial solution, says Richard Klipin, CEO of the Financial Services Council (FSC). And that’s only half the story. If men are living longer, so are women, sometimes much longer than men. The longevity of women over men is no urban myth. Since records have been kept, women tend to outlive men irrespective of era, race, or location.

    A woman retiring today at 65 may have another 30 years to live. Will your current financial retirement planning cover that? Even those who have been diligent about their retirement planning can run out of money within 10 years and live the rest of their lives with only the national superannuation pension as income. “Thankfully, in New Zealand, we do have a system which keeps the wolf from the door for most people,” says Klipin. “But it is not a generous lifestyle and many people can end up in a [financial] place they don’t want to be.”

3 things you can do to ensure you’ll be alright financially after retirement

Many New Zealanders need other ways to fund their retirement apart from selling the family home. But what can you do?

  1. Be realistic, do your research now

    Most people either under- or over-estimate how much money they will need to live comfortably after retirement. This informs the decisions they take when it comes to their financial planning. There are two important things to remember:

    • You can never start early enough when it comes to saving for your retirement. If you are just starting out, put plans in place now.
    • Older people, who are still working, need to make the most of the opportunities available to grow their savings and increase their retirement income.

    According to Richard Kiplin, people tend to cash up, go on a holiday, buy a car and update the white goods – and then they say, ‘Right, we’re ready for retirement’. Unfortunately, many of them aren’t ready at all. Thankfully, with Kiwi Saver, New Zealanders are developing an accumulation culture, but there has been little in the way of ‘decumulation planning’. Decumulation happens when retirees receive a regular income over and above their pension.

  2. Invest wisely

    One potential tool is Britannia’s Lifetime Income Fund. This product combines investment with insurance to give you a retirement income for life. No matter what happens to interest rates or financial markets, your income is insured to last the rest of your life. A fixed sum, minus an annual fee and tax, is paid out to you on a fortnightly or monthly basis.

    Investment returns from the Fund are added to your account while fees, tax, Lifetime income insurance premiums and your fortnightly (or four-weekly) retirement income payments are deducted. Even if your regular retirement income payments deplete your savings in the Fund, it doesn’t mean you’ll run out of income. Your income is insured by Lifetime Income Limited to make sure your income continues to be paid to you for the rest of your life.

    If you pass away, any remaining balance will go to your estate.

    Other investments, such as in stocks and shares or property, may also be excellent options

  3. Get good financial advice from experts

    Kiplin went on to say that nearly all older New Zealanders will be living on the pension only after just 10 years, indicating that more education is needed on investment options available during people’s lives. “About 40% of retirees whom we surveyed regretted not having had more financial advice.”

And finally, whatever you do, don’t do this

Don’t wait to tackle your retirement planning any longer. Make an appointment today with a Britannia expert financial adviser and find out how Britannia’s Lifetime Income Fund can help boost your financial retirement planning and take it from downsizing to upgrading!


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Disclosure Statements for Britannia's Financial Advisers are available on request and free of charge. Product Disclosure Statements for the Britannia Retirement Scheme and the Integral Master Trust are available from the schemes’ issuer, Britannia Financial Services Limited, phone 0800 500 811. Britannia Financial Services Limited is a Registered Financial Service Provider.

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