There seems to be a common opinion in New Zealand that as long as you own a house with a paid off mortgage, your retirement will work out just fine financially.

Unfortunately, it’s not that simple.

With the exception of my very expensive house, my mortgages generally took up about 35% of my expenses. That still leaves a lot of expenses (65%) outside of the mortgage.

Just because you’ve paid off the mortgage, you’ll still have all those housing related costs: Insurance, rates, maintenance and repairs, improvements, and so on. In fact, two of those line categories, insurance and rates, tend to increase at a rate that is faster than inflation.

So, for your money to last your retirement you may need more than you think.

Of course, having that 35% reduction in your annual expenses is a significant boost.

The point is though, that you will need more than just a paid off home.

Once your income comes to a halt, what good is a paid off home in retirement if you don’t have the money to pay for your electricity, food, or vehicle? You can’t spend your house.

You’ll be forced to rent out rooms, downsize house, or get a reverse mortgage. None of which are probably your ideal scenarios unless planned for. I mean, why rush to pay off your mortgage, only to get out an even more expensive loan to drawdown some capital through a reverse mortgage? Defeats the purpose of paying off your mortgage quickly.

Non- mortgage spending is still over half of most people’s budgets and deserves special attention. So, before you go thinking if I slowly pay off the mortgage I’ll be fine, I suggest thinking again.

A paid off home is a great thing, but also make sure that you take care of the other areas of your finances. Retirement planning is essential for everyone, so make sure you have a personalised plan. Otherwise, you could be in for a long, unpleasant retirement.

If you need help with your personal retirement planning, then get in touch today.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here