NZ Herald 7 June 2025

AI go along with most of what you say, except two things:

• The idea that living frugally is boring. There are heaps of interesting free or cheap activities, from reading library books to picnicking at the beach to walking in the bush to playing board games. Or you can share meals with friends. Or grow your own fruit and vegetables for fun as well as saving money.
• Your conclusion. You seem to imply that nobody should need government support. Of course it’s great if you can get through life without it. But that requires not only hard work but also good luck. it’s not so easy for people with physical or mental health issues, or difficult childhoods — or any number of other hurdles.

Sure, be proud of your independence. But please don’t lose your compassion.

AHealth costs can indeed soar as we get older. And you’ve had a tough run lately. But the data on spending in retirement show that, despite this, most people spend less as they age.

As you say, you’re lucky you can cover your costs. Read on for another way to cope.

AWell done! And good to read that wine and lunches out feature in the budget.

I like your reverse mortgage plan for covering a major health cost. It’s an excellent use of the all that money you have tied up in property.

We’ve covered reverse mortgages in depth in the column lately. But I’ll just repeat my three “rules”, and add a fourth.

• Try not to do get a reverse mortgage before 75 or 80 — to limit compounding growth of the loan.
• Spend most of your retirement savings first, except for emergency money.
• Don’t get a lump sum unless you need it. You’ll pay high interest while the money sits around. You can set up regular payments — and the ability to borrow more if you need to.
• Consider rates postponement first, if you qualify for what your council offers. You postpone paying part or all of your rates until you sell the property. The interest rate is usually considerably lower than on a reverse mortgage.

Note that neither Heartland Bank nor SBS will let you have both a reverse mortgage and rates postponement. And Lifetime has a similar rule with its home reversion. But you can pay off the rates postponement debt with part of your new reverse mortgage or home reversion money.

Next week we’ll look at health insurance for the retired.

This week, and for the next two weeks, this column will include excerpts from Mary’s revised and updated No. 1 bestselling book Rich Enough? A laid-back guide for every Kiwi, published by HarperCollins Aotearoa New Zealand

You don’t have to ever own a home to be financially well set up.

This goes against the grain for many New Zealanders. We’ve been raised to dream of having a place of our own. But house prices — despite recent price falls — are still out of whack with incomes, and out of reach for many would-be first home buyers.

It won’t always be that way. How do I know? Just by looking at history.

From the 1950s to the late 1980s, the average New Zealand house price was 2 to 3 times the average household annual income. Then house prices gradually rose, to 6.5 times income in 2008. They then dropped, but have since risen fast to a peak of 10.4 in December 2021. In late 2024 they were back at 7.9. But that is still way out of line.

Generally, around the world, houses cost about three times household income — as they did here for 30-odd years just a few decades ago.

Who knows what will happen next? But I would be surprised if we don’t see a long-term further decrease in the price-to-income ratio.

In the meantime, rather than complaining, if you feel shut out of the housing market, think in terms of getting on with your life as a renter — and possibly staying that way for the rest of your life. You can always change your mind later.

Many people in Europe rent for life. In Germany, the home ownership rate is just over 50%, and in Switzerland it’s lower still. And they are not poor countries — far from it. These Europeans are happy to remain as tenants, usually with very long-term leases. It’s not uncommon to live in the same rented property all your adult life. The people treat their rented accommodation as their homes in a way that only homeowners usually do in New Zealand.

The circumstances in those countries are quite different from here. For one thing, the law tends to favour tenants more. Still, the tide might be turning in New Zealand.

In a Consumer NZ survey of people who were renting accommodation, 64% said they rented because they can’t afford to buy. But another 26% said “It suits my lifestyle right now” and 5% said “I like the flexibility of renting”.

It would be great if some landlords offered tenants longer term leases — perhaps after a trial tenancy of, say, a year. That could suit both sides.

Weighing up the finances

Despite what your parents and others might say, renting for life doesn’t have to be a bad decision financially.

Key message: You can do fine as long as you reach retirement with lots of extra savings — preferably several hundred thousand dollars — to cover the costs of your accommodation for the rest of your life.

That might sound difficult — saving a whole lot more than people who own a home — but it doesn’t have to be.

Generally, it costs considerably more throughout life to own a home than to rent accommodation of a similar standard. Not only do you have to pay mortgage interest, but also rates, house insurance and maintenance. If you save the difference, and invest it wisely over the years, you might even end up better off than your homeowner friend on about the same income as you.

How do you know how much to save? Ask how much your friend spends on having her or his own home.

I’ve seen various calculations of who becomes better off — the homeowner or renter. The answer always depends on the assumptions you make. We could make one set of reasonable assumptions about house prices, mortgage interest, insurance, rates, maintenance, rent and returns on savings, and the homeowner would win. But with another set, the renter would win.

One thing is certain: if you’re a renter you won’t win unless you are:

• Disciplined about saving. It’s not clever to live the high life because your accommodation costs are cheaper. The best way to keep the savings rolling in is to set up an automatic transfer every payday.
• Willing to make higher-risk investments with your savings, so they get higher returns on average. A good choice would be a KiwiSaver or non-KiwiSaver growth or aggressive fund, which holds mostly shares.

As you know by now, with these investments your balance will sometimes fall, but you need to stick with it through thick and thin.

You can probably transfer your savings directly from your bank account into a growth fund or, if the provider doesn’t take small regular savings, into a savings account, which you empty into the growth fund every now and then.

One clear financial advantage for the renter over the homeowner is that your savings can be more diversified.

If you’re in a growth fund, you will be in a wide range of shares and probably also some bonds and other assets. Also, in a non-KiwiSaver fund you can relatively easily access your savings if you need to.

Weighing up other issues

An obvious negative of renting is that your landlord can kick you out. That would be especially bad if you have children — although longer-term leases could help reduce that risk.

Also, in most cases you don’t get to choose the carpets, paint colours, curtains and so on — although, again, you might with a longer lease.

There may be similar issues with the garden. If you’re a keen gardener, you’ll want some kind of guarantee that you won’t be asked to move out just when the vegies are coming into their own, or the hedge is getting bushier. And if you enjoy DIY or renovation projects, you can’t build up value in the property by adding a deck.

Also, over the longer term, you won’t have a property for your children to inherit. And there’s less security for your retirement in a rented property, although you could perhaps use your savings to buy a small home at that stage.

But there are some big advantages to renting:

• You don’t have to worry about maintenance and other responsibilities that can sometimes weigh heavily, both financially and psychologically, on a homeowner. As I once heard someone say, ‘Did you have a good weekend, or do you own your own home?’ If you’re renting and the roof starts to leak, you just call the landlord.
• It’s often easier for a renter to live close to downtown, which can be a big plus in these times of terrible rush hour traffic.
• You can move house much more easily and cheaply than a homeowner.
• If you want to set up your own business, you could use some of your savings to do that, whereas a homeowner may have to raise a loan by adding to their mortgage.

For some people, none of this is as important as the pride of home ownership and the fact that you have more control over your living environment. But for others, the freedom that comes with renting is a big attraction.