Don't coast into a more frugal retirement than you really need to

Congratulations – you've hit your 50th birthday and are now mortgage-free.

With only 15 years to go before your first superannuation payment, the next attack is about to begin. Turbo savings.

You were born sometime in the mid-1960s when interest rates were 6 per cent. In the last 50 years, mortgages have cost on average an eye-watering 10.1 per cent a year.

Even worse, just as you became a grown-up rates hit 20.5 per cent, in 1987. The last 25 years of paying off your home have felt punishing. Many extended periods where rates of 10 per cent ground away at your wages and averaged out at 8.1 per cent. You've done well to rip the noose from around your neck.

Mortgage-free failure

But for some couples, the financial ideal has not been accomplished. Treasury data is old, but figures from 2007 and 2008 show almost 70 per cent of 55 to 64-year-old couples were mortgage-free, along with 40 per cent of 45 to 54-year-olds.

Those left with debt seem to have a minimal level, with a Statistics New Zealand report stating "individuals aged 45 to 64 years continued the trend of paying down their debt, reducing it to around 10 per cent of the value of their assets in 2014/15". 

Whew, so at least 50-year-olds left with debt seem to have small amounts.

Whether you're a child of 1960s or 1970s you should now be on a mission. Any scrap of mortgage left should be wiped out. Don't take the easy life and extend it out to age 65, just because it's possible. Don't accept a lower fortnightly payment, just because interest rates have fallen.

Fifteen years of preparing for retirement is a mere blink in savings-time.

You are likely to live a further 20 to 25 years on a very tight income, so every dollar saved counts and every year adds to compound returns.

The lucky generation

You are the lucky generation. BNZ report one in three people will be over 65 before they pay off a mortgage and in Britain it is estimated that 25 to 34-year-olds will be 71 before their housing debts are paid.

Working beyond the age of 65 isn't an automatic gift. Health, brain-power and muscle-power tend to sag and part-time wages have never been a gold-mine unless you are in the category of being a gifted expert in your field. Working in retirement is a nice top-up if it happens.

If you're a mortgage-free couple, think about saving one income and living off the other. If one of you doesn't work due to the previous demands of a family, ask yourself why. It's easy to let that status extend out into a luxury. It's very difficult for two people to retire off the savings of one.

If you're a couple with a mortgage that seems to cling-on, go to a broker and see how you can crunch it quickly. Offset mortgages and regular over-payments can be powerful.

The Reserve Bank numbers show the average floating rate in June 2016 was 5.7 per cent and the average two-year fixed rate was 5.1 per cent. There are currently five-year fixed rate special offers from ASB at 4.79 per cent and Westpac at 4.89 per cent. Most of the main banks are offering a one-year fix at 4.25 per cent and lower.

Your generation has witnessed a 50-year average lending rate of 10 per cent. Now you are looking a gift horse in the mouth with rates at half these levels. Use it.

If you have a $200,000 mortgage left, you could pay it off at $729 a fortnight for 15 years and incur over $84,000 in interest. Power up the payments to $1740 a fortnight and you'll be mortgage free in five years, having only paid $26,000 in interest. While these repayments might feel like a lifestyle spoiler, you will never be in a better position to make financial progress. You are at the height of your career, your children are older and as a couple your earning potential will never be higher. Time to knuckle down.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.