NZ Herald 9 August 2025

AYou’re referring to last week’s Q&A, in which I said rental property isn’t a great investment during retirement, “unless you are wealthy and enjoy being a landlord, or regard the property as your children’s inheritance.”

That’s because you tie up money in the property you could otherwise spend gradually through retirement.

While last week’s correspondent said income from their rental was less than they would receive from a term deposit, I didn’t mean to imply that proceeds from selling a rental should go into term deposits — as you seem to think.

I’ve said in this column, many times, that it’s wise to put retirement savings you expect to spend in the next three years in bank deposits or a cash fund. But invest three-to-ten-year money in a bond fund or medium-risk fund, and longer-term money in a higher-risk share fund — in or out of KiwiSaver.

I agree that term deposits may not beat inflation, but over the years a share fund will, in much the same way as property.

And while shares certainly have their ups and downs, property values have also wobbled.

Infometrics data show that since the year ending March 2005, New Zealand’s average house value has risen sharply — by 11 to 14% — in five years, and rose a dramatic 24% in 2020–21.

But there have also been four years when values fell. Two were in the global financial crisis, in 2009 and 2011, and two were in 2022–23 (minus 12%) and 2024–25 (minus 2%). See our graph.

True, shares tend to wobble even more. But that’s why I recommend putting only longer-term money in share funds, so there’s always time to recover before you spend it.

On your comment that “rental income typically increases over the years, especially as housing demand will in time continue to rise,” I’m not so sure.

A recent article on the Auckland Property Investors Association website says, “In April 2025, annual rental inflation fell by 0.7% nationwide, with Auckland (minus 2.4%) and Wellington (minus 3.1%) leading the drop….The gear is shifting and investors need to pay attention.”

It quotes the Ministry of Housing and Urban Development on three factors causing this: “a surge in completed builds”, slower net migration and a high number of rental listings.

Other reasons why selling a rental before retirement and investing in bank deposits, a medium-risk fund and a share fund — as outlined above — is a good idea:

• Flexibility. If you suddenly need a large sum for major home repairs, a car, or a hip replacement without a long wait, the cash is there. Being forced to sell a rental fast — dislodging tenants and perhaps accepting a low price — doesn’t work well.
• Diversification. Owning your own home and a rental property doesn’t spread your risk well. But if you sell the rental, you can easily spread your money over bonds, international shares and so on. If you love property, put some long-term money in a property fund. You can even dabble in gold or cryptocurrencies — although I wouldn’t recommend doing that with more than 5% of your savings.
• Hassle. Rental property can come with unexpected maintenance issues, tenants who can’t or won’t pay, and changing regulations. KiwiSaver and similar investments just sit there.
• Enjoyment! With the money that was sitting in real estate you can travel widely, buy the good seats to shows, eat out often, spoil the grandkids, drive a car you love…

And if you’re concerned about inheritances, you can still leave plenty — perhaps half or a third of the proceeds from selling the rental.

I expect, though, that I won’t convince you. It’s hard to argue with the first half of your statement: “Importantly, owning property gives retirees control. It’s a tangible, familiar asset not subject to the same volatility or institutional risks as many financial products.”

But, as I’ve noted, property prices and rents are indeed volatile. And how about increasing landlord regulation and possibly tougher capital gains taxes as institutional risks? Rental property often works well, but it’s not risk-free.

Still, there’s a psychological element. Some people just seem to prefer to own “bricks and mortar”. Perhaps they enjoy DIY maintenance, or like the idea of providing good long-term housing for a family. If that’s you, go for it. I hope it works well.

AYou’re right — I don’t write much about investing in shops, factories, offices and the like. I don’t know a lot about it, and it seems to be an area in which those who know can hoodwink the babes in the wood!

I’ve heard of people doing really well in commercial property — like you. But I’ve also heard of a few whose property value plunged. And I’m sure there are others who don’t talk about it.

One way to reduce the risk is to invest in a commercial property fund that holds several properties. You get diversification and hopefully expert management. But, as discussed recently in this column, there can be problems getting your money out when you want it.

And just like residential rental property, I reckon tying your money up in commercial property in retirement is not a great idea — for much the same reasons.

AAnd I’m sure you have a lot else running through your mind at this difficult time.

Some readers will criticise me for including your letter, given that you are much better off than most people. But you still need a financial plan. And, as always, I hope other readers will find this Q&A helpful.

I suggest setting up your money as described in the first Q&A, with three years of care costs and other spending money in bank deposits or a cash fund, and so on. Then, every year or so, move another $100,000 plus spending money from higher risk to medium risk, and from medium to low risk.

Your current managed investment will probably be medium or high risk. Ask the provider. You could use that fund as part of your plan.

You might also consider selling your rental properties after reading the above Q&A!

If all of this feels too complicated, find a good financial adviser. I recommend advisers whose only reward is payment from you, in the form of fees.

Other advisers, who are paid salaries or receive commissions for placing your money in certain investments, might be free or cheap. But they may not act in your best interests.

I used to run a list of advisers who charge fees on my website. A while back I passed the list on to MoneyHub, which now runs it. You can see the list here. Please note that I don’t know any more about these advisers than how they charge for their services. But there are tips there on selecting someone.

AFirstly, there is no government guarantee on reverse mortgages. Still, the main providers — Heartland Bank and SBS Bank — are regulated by the Reserve Bank. And given they are lending you money, as opposed to your investing money with them, I don’t see how there’s any risk.

The only worry, really, is that you borrow a large amount early in retirement and, through compounding interest, the debt gets uncomfortably big. But the value of your house will almost certainly rise too, over the years. And the reverse mortgage lenders are pretty careful not to lend an amount that is likely to lead to later problems.

A reverse mortgage can work really well for people in your situation. But if I can’t persuade you to look further into it, there may be government help for you beyond New Zealand Super. This page on the Work and Income website lists what is available.

It includes info on the SuperGold card, the accommodation supplement — which can include help with homeowner costs, the disability allowance, temporary additional support, the Community Services Card and payments for residential care.

I also recommend you go to the Office for Seniors website and sign up for the Seniors Newsletter, emailed monthly, which has all sorts of info that might help you.

AGood idea! The Rule of 72 is really handy for giving us a pretty accurate idea of compounding interest. Some examples:

• If an investment has doubled in, say, 9 years, divide 9 into 72. The investment return is about 8% a year.
• If you know the return on an investment is, say, 6%, divide 6 into 72. It will take about 12 years for your investment to double.

As you point out, this can also be applied to a debt:

• If the debt has doubled in 9 years, the interest charged is 8%.
• If you’re being charged 6%, and you make no repayments, your debt will double in 12 years.

It’s important to note the “you make no repayments” bit. With a mortgage, you make regular repayments, which reduce the interest compounding. (The exception is reverse mortgages). And hopefully, with credit card or other debt, you are also making repayments.

With no repayments, a debt can grow alarmingly, given that credit card interest rates are often around 20%. If we divide 20 into 72, we find that a 20% debt with no repayments will double in about three and a half years. And then double again, and so on. It’s not pretty.