Whenever I make a speech to retirees, I always begin with one of the most basic questions people need to think about. It’s almost inevitable that at some point you – or your partner, if you’re in a couple – will need care. Is your home one where that care can be provided? That became very real for me two years ago when I broke my ankle and discovered it was impossible to live in our present home without making some modifications.
That line of thinking leads straight to the next big question. Do you expect to live in your current home for the rest of your life, perhaps with some changes along the way, or do you plan to move? And if you do move, where to?
Moving to an exotic location may sound like paradise, but I recommend renting first in the area of your choice, ideally for 12 months, but at least for six months. It gives you time to experience the environment and, just as importantly, to see what sort of social network you are realistically likely to build. It’s a simple step that can save you from making a very expensive mistake.
If you move, will your next home be an apartment, a smaller house or townhouse, or some form of retirement village accommodation? For most people, I think the most appropriate option is a retirement village. There’s a wealth of research showing that a happy and healthy retirement depends on a good diet, regular exercise, a sense of purpose, and a strong social network. A good retirement village can provide all of those.
I always tell audiences about Harry and Margaret, who retired to the Sunshine Coast. Harry kept himself busy doing casual work as a handyman, while Margaret played golf. Life was very good. But after a few years it all became a bit too much, so they moved into a retirement village in the Sunshine Coast hinterland.
Harry loved it – especially the daily happy hour, where he would sit with Margaret and five widows from the village, enjoying good conversation and a few glasses of wine. They called it Harry’s harem.
Time passed, and then life took an unexpected turn. Harry died, fairly suddenly.
But here’s the important part. If they’d been living in an apartment where they knew hardly anyone, Margaret’s world would have shrunk overnight. Instead, her life in the village carried on. The same people were there, the same routines, the same support – exactly when she needed it most.
That’s the real value of a social network, and it’s something many people underestimate the value of when they’re planning for retirement. There’s plenty more to say about retirement villages – the good, the bad and the expensive – but that’s a conversation for another column.
The next big issue for anyone planning retirement and the home for this phase of life is how to fund it. Ideally, you want to retire mortgage-free. If you’re still working, you should be using every option available to boost your super, so there’s at least enough money there to deal with any mortgage debt when you retire.
I’m often asked whether people should focus on paying off the mortgage or boosting their super.
Making tax-deductible contributions is usually a no-brainer, because they come from pre-tax dollars, whereas mortgage repayments are made from after-tax income. On top of that, a good super fund should be earning a higher return than the interest you’re paying on your mortgage. And remember, if you have sufficient super, you don’t necessarily need to eliminate the debt as soon as you retire – you can draw enough from super to pay the interest while the remaining super balance continues to compound.
The other critical factor is time. If you’re 60, earning $100,000 a year and have $500,000 in super, that’s all you’ll have when you retire – and you’ll still be seven years short of qualifying for the age pension. Working for five more years could lift your super balance to around $800,000. There are also strategies such as transition-to-retirement pensions, which allow you to access part of your super once you turn 60 while continuing to work, often on reduced hours.
The key point is this: the more you get into your super, and the longer you can delay drawing on it, the more you’ll have when you eventually need it.
Where you live and how you pay for it are two of the biggest issues facing any retiree. Do yourself a favour and think about the things that you, like almost everybody else, are likely to face.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: [email protected].