“There are changes about to happen in the way we live our lives in later years, the likes of which we have never seen in New Zealand before,” says authorised financial advisor (AFA), Maurice Mehlhopt.
How attitudes to retirement and retirement finances have changed
Past generations saved hard, went without luxuries, lived skimpily in retirement and only died happy (usually living with one of their children), when as much wealth as possible was passed on to the next generation. If this philosophy still existed today there would soon be some very rich rellies indeed. This is because over $100 billion in real estate value is about to be released as older folk, who own homes, pass on.
It will be the biggest exchange of wealth this country has ever seen, it will happen over a fairly short number of years, and it will have
a marked effect on the economy.
So, are the benefactors grinning already with plans to book first -class air fares or luxury holidays? No, they’re not, and that’s because attitudes to inheritance have changed dramatically in recent years. No longer do those who are over 70-years-old believe they should go without so they can give everything to their family. The Peter Snell ‘third age’ has arrived. Oldies now want to be out doing stuff; travelling, eating out, enjoying life to the full and then whatever is left over will be the inheritance.
Should you stay or should you go?
That old idea of selling up to release some cash then living with family is no longer happening as much. Even the most loving families tell me that the thought of mum and dad moving in with them is just not where it is at anymore. Likewise, parents want their own space and don’t want to be live-in babysitters or groundstaff.
So where will the money come from to enjoy this ‘third age’? About half of all those over 75-years-old have very little cash left (even though up to 80% of them will own a home). Many will ‘sell down’, move to another part of town, or a new town to release some money and while this does not always work for various reasons it is still the most popular fund provider.
Moving to a new town for instance only works if you are in a biggish city like Auckland. Smaller towns tend not to vary much in dollar value from one side of town to the other, so by the time you pay agent’s fees and removal costs there may not be too much left.
Some will choose to borrow from their bank if they have income to support a facility while an increasing number of people will take out a ‘reverse mortgage’. This much maligned product will be the answer for many who wish to stay in their home, but enjoy the ‘third age’.
While many try to devalue this type of borrowing, many thousands of loans have been activated throughout New Zealand over the last 10 years and clients love them.
I have often read articles criticising this type of loan but I have never had complaints from a client with a reverse mortgage. They are happily enjoying the new life a loan like this provides. Not to mention there can be benefits of using some funds this way before you end up in care.
So, there you are next generation!
Nowhere near as much of that $100 billion is going to be passed on to you so quickly, but the good news is I often find that the next generation are okay with this. Children are increasingly encouraging their parents to enjoy the retirement they have earned by initiating the conversation about home equity release.
In most cases there is ample equity for parents to enjoy the ‘third age’ - and for family to enjoy that time with them, while still leaving behind a considerable amount of wealth to be passed on.
Best wealth management in older age is necessary to ensure the best use of that $100 billion windfall. I specialise in providing support and financial options to retirees who may be wanting to do more with their retirement years but struggle to do so. If you want to maintain your lifestyle it’s important to know what your choices are. Sometimes all it takes is a chat with someone who understands.
MAURICE MEHLHOPT, RETIREMENT FUNDING, 4 Collingwood Street, Freemans Bay, T: 09 361 5137, M: 021 639 574, www.retirementfunding.co.nz