Thursday, January 23, 2020

retirement

When our grandparents looked towards their golden years, things were a lot simpler. While they knew they might not be flush with cash once they stopped working, they would always have a place to live and a legacy to leave their descendants in the form of the family home, owned outright and mortgage-free. 

Living comfortably on the aged pension or your superannuation in retirement relies pretty heavily on the fact that the house you live in is paid off in full. But for more and more older Australians, this simply is not the case. 

Increasing numbers of us are retiring burdened by debt, leading to financial stress and housing insecurity. Statistics and news reports tell us that Australians approaching retirement age, particularly women, are becoming the fastest growing homeless demographic. It is a scary thought. 

How does this happen? 

It is surprisingly more common, and less complex, than you might think. 

Divorce or the death of a partner is not something we like to think about, but it is always a possibility and could have a shocking impact on your finances. 

What if you become ill or injured and need to retire earlier than you planned?

Alternatively, if you have a physical job, you might find yourself unable to work in your usual position as you get older, and it is not only tradesmen who need to consider this - nurses, childcare educators and warehouse workers are all on borrowed time until their body begins to object to the daily strain. 

Meanwhile, essential medical expenses could obliterate your savings or force you to re-draw on your home loan. 

This means that when you should be enjoying your retirement, basking in the fruits of your years of hard work, you could be worrying about keeping your roof over your head. 

Borrowing in retirement

Banks may lend to older borrowers on one condition: that they have an exit strategy to ensure they can pay out the loan once they retire. This could mean taking into account your superannuation balance and your ability to continue paying the mortgage, or the fact that you are likely to sell up your larger property and downsize, leaving you mortgage-free. 

This makes sense. After all, they want to mitigate their risk and lend responsibly. But how many of us have actually sat down and pondered what our exit strategy might be?

Could you continue making mortgage repayments if you had to retire in the near future? If not, do you have enough equity in your home to buy a smaller property outright? And would you even want to do that?

If you answered no to these questions, you still have options. 

One way to prepare for a debt-free retirement is to salary sacrifice or make personal contributions to your super. This has the potential to reduce your tax bill, as well as increase the amount you will have to draw upon when you retire. If you are a lower income earner there are also government contributions available. 

Alternatively, you could use any extra funds to pay down your mortgage as quickly as possible. Remember, interest rates are at record lows, so any extra amounts you can pay off now will be more effective in reducing the principal than when the rates inevitably rise again. Your dollars will be working smarter and harder. 

The first step to designing your own debt-free retirement is to speak to your financial advisor in consultation with your mortgage broker. They can take into account your unique circumstances and set you up with a plan that will best prepare you for what lies ahead, so you can spend your retirement babysitting the grandkids or relaxing at the beach, rather than crunching numbers.

first home buyer

If you have been considering buying your first property, now is a great time to buy. Here is some advice to get you started:

Be a realist

Negotiation is the word that first comes to mind. It is a very starry-eyed notion, buying your first property and you can easily get carried away with the 'dream' and find yourself coming down to earth with a significant knock when you realise what you can afford. 

But look at this as exactly what it is - that all-important first step of getting into the property market. 

Location and lifestyle are the biggest points when searching for and buying a property, but you need to be flexible enough to adapt to your budget. Aim for what you can afford from the beginning of your search, and you will not be disappointed. 

Your property is likely to increase in value, and you can add value to it with improvements and additions, and soon enough you could be ready to trade up to something closer to your dream home. 

Do your maths

There are lots of hidden costs when buying your first property that you must not forget. On top of your mortgage repayments, you need to think about all the extra bills you will face now that you are not renting. 

Costs such as rates and utilities, insurance, maintenance costs, strata and fluctuations in the mortgage rate. These things will have a negative impact on your finances and must be factored into the affordability of the property you are looking at buying.

Due diligence is key

Pest and building reports are expensive, yet necessary. The average house-hunter sees five different houses they want to buy before making the purchase, so the costs can quickly mount up. A few hundred dollars spend on thoroughly examining a property before an auction could save you tens of thousands of dollars in costly repairs later. 

If you are looking to buy an apartment on a strata title, it is imperative that you consider your rights and responsibilities, especially financially. A good conveyancer is worth their weight in gold and will check out complicated strata arrangements, previous and ongoing disputes and issues with the strata fund. 

Trust the experts

Friends and family will always have valuable advice, however, do trust the experts. Do your homework and find professional advisers who will be able to lead you every step of your property-purchasing journey, from finance through to settlement. 

Ask them about their credentials, get second opinions, check their client references and don't be afraid to shop around until you are 100% happy with your choice. A good adviser will have the expertise to help you on your property journey throughout your lifetime. By surrounding yourself with a team of trusted professionals, you can be confident your first property purchase is built upon a solid foundation. 

 

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation or needs before making any decisions based on this information. 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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