Time to downsize is before you think you need to
Are you part of Generation Stuck? If you've already retired you're very likely to be. If you're in your 50s, you're headed that way.
Gen-Stuck are those relying on their homes to fund part of their retirement. The downsizers. They will move to a smaller house and free up capital if and when they need to. Sound familiar?
Downsizing is New Zealand's worst-kept secret. If we're honest with each other, we're all relying on it as our ultimate backstop; our last hurrah and a safety net rolled into one.
The ability to sell our quarter-acre castle is part of the famous she'll-be-right culture. It's an excuse for living-for-today, an excuse for not upping our KiwiSaver contributions and the reason we pay lip service to tearaway house prices.
Why else is there very little panic across the country when the retirement commissioner talks about our lack of saving and the no-frills-retirement many will be living? Translation; poverty. But we barely blink at the warnings.
We secretly think that won't be me. I'll just downsize and release a couple of hundred grand when things get tight. Bung the money hole with bricks and stucco.
The good thing is we're not stupid. Downsizing is a jolly good idea. The only problem is we're more likely to become Gen-Stuck than actually complete the task and move to a smaller home.
Why? First emotions and second a severe lack of good quality small houses.
The emotionally stuck trap
Emotions drag us into Gen-stuck. We think we're resilient and will do what's needed on a logical level. Then we turn 75 and can't do it.
Where did I just pluck age 75 from? Somewhere quite close to my rear end to be honest, but it's a number that won't be too far removed from the average tolerance level. Experience with money and people means there's a fair amount of confidence in this grand generalisation. Pre-70 is pretty good. Age 60 is even better.
Somewhere in that first 10 years of retirement, we get sticky. We know we're living in a giant storage unit full of stuff. We're still active and our home represents a marriage, a mortgage, our memories, our career and our kids.
Feelings of being overwhelmed and anxious creep in slowly. The smaller house needs renovating. There's not enough room for the grandchildren.
It doesn't have enough wardrobes. Who will look after the cat? Leaving the neighbours and learning to operate an induction cooktop keeps us awake at night. Each one seems a small illogical worry, but in combination they cause paralysis.
The small house trap
Pretend you've retired today and want to downsize. Hop on Trade Me Property and see what's out there in a price range that releases some capital for you. Then pick your chin up off the floor.
Supply of quality small homes is short. They'll need new bathrooms, kitchens and may not be insulated. Now imagine doing all that aged 75.
You could be fighting off first homeowners with all their DIY energy. You'll discover modern units and townhouses cost a fortune. They're a great idea, but you resent getting half the house for 80 per cent of the value of your big home. It barely seems worth it for a few grand in the bank.
New-for-old price gap paralysis sets in.
If you downsize at the right time of life you'll have the energy to do-up the family home before selling. You'll also have the energy to manage a small new-build or renovation on a smaller property.
To really make a difference, you need to be in that small house for most of your retirement with lower rates, maintenance and energy bills. The benefits of proximity to shops, no stairs and being nearer family will be appreciated later, but aren't your drivers right now.
Rules of downsizing
1. If you think it is too-soon, you're sitting in a sweet spot that can quickly become too-late. Do it when the thought of a renovation or new-build feels like an adventure, not a form of torture.
2. Don't be afraid to invest the proceeds. Sharemarket funds are not out of the question. You could still have 10, 20 or 25 years to live and need inflation protection.
3. Talk to an authorised financial adviser. They can help you turn your lump sum into a monitored income, using models to calculate a monthly payment.
4. Ask for help. The game of keep-biff-giveaway is a hard emotional battle. If you lived in the US, you could employ a Senior Move Manager. In New Zealand that's called family. They need to step up and be supportive with their time.
5. If you've been caught out and it's too late take a close look at a reverse equity mortgage. It's your freedom and I've never seen "lived life in reverse equity" written on a gravestone. It's not the devil some people claim it is.
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.