South Africans are notoriously poor savers, and a shocking figure to emerge recently from the FNB Retirement Insights Survey, is that only 10% of those employed expect to have enough saved to be able to retire comfortably at the traditional age of 60, or even 65.
In fact, according to another study by Sanlam, most South Africans will currently need to work until they’re 80 to achieve financial security in retirement. The benchmark for this is a monthly income equal to 75% of their last working salary.
And this scary prospect is presenting many mid-life homeowners with a difficult decision: Should they focus on paying off their bond now so that they can live “rent free” and maybe retire earlier, or channel whatever additional funds they can muster into their retirement savings to secure their future income?
Read more: Is Now the Right Time? Why Waiting Makes Sense for Your Retirement Home
Of course, owning your home outright in retirement can significantly reduce your monthly expenses, which is no small advantage when you get to the point of having to live on a fixed income. Not having a bond or rent to pay gives you peace of mind and also frees up money for things like medical expenses and insurance as well as basic needs.
There is also a great sense of security in having a fully paid-for roof over your head for the rest of your life, but it’s important to note that if most of your wealth is tied up in your home, there is a danger that you could become “house rich and cash poor”.
That’s because property is not a liquid asset that you can easily use once you are retired to buy groceries, pay for healthcare, or cover your day-to-day living costs – including municipal electricity and water bills, and property taxes.
Consequently, there are many who advocate for building up a robust retirement nest egg that will provide you with a steady income in your later years and financial flexibility, rather than putting any extra funds towards paying off your home.
They argue that good retirement investments will continue to grow and generate returns or income for you as you age and also point out that contributions to a retirement annuity or pension fund can mean significant tax savings now, while building your future income.
Read more: Seniors also need home offices now
The good news is that you don’t necessarily have to choose between your bond and your retirement. Downscaling as soon as you can is a third option that may very well enable you to pay off your home sooner and boost your retirement savings – giving yourself the best of both worlds.
Selling a large family home as soon as your children move out and moving to a smaller, more affordable property can release equity, eliminate or at least significantly reduce your monthly bond commitment and even free up more capital to invest
In all likelihood it will also reduce your home insurance and maintenance costs as well as your municipal bills. And if it is a newer build it will probably also have “green” installations like solar geyers or heat pumps that will lower your monthly costs even more.
What is more, if you choose to move to one of the many “active lifestyle” developments now being created for those over-55, there is a better chance of having friends and being part of a caring community as you age, which longevity experts are increasingly recognising as the most essential component of a happy retirement.
Chas Everitt has many retirement village and 55-plus estate homes for sale, so contact one of our property professionals today and explore your options for living comfortably and securely in retirement.
