Renting is becoming more of a lifestyle choice, do you know how much money you need for a safe retirement and are you prepared? What age do you start at saving for your retirement plan?
Can Renters afford to retire?
Is renting your lifestyle choice?
People blame house prices for this. Actually that is not entirely true when looking at the demographic shifts. Yes, prices play a role, but more single households (young and retired people) prefer renting. Especially the ageing of the population, as more people live for longer after the death of a partner.
The specific in NZ is that retirees get their income from two sources – NZ Super and individual savings preferred as mortgage-free home. With NZ Super alone you would not be able to keep your today’s lifestyle when you have to live on currently 350 Dollars NZ Super per week. Often underestimated even with mortgage-free house alone and no savings in cash life as retiree is not easy. High ownership costs are the reason that homes are dated and unexpected costs due to illness, natural disaster damage, etc require spare money. That is not much different to renters. The only advantage homeowners have is that the frozen equity in their homes is accessible when selling or with products like “reverse mortgages”, but not without risks. Therefore, everybody should have a retirement plan.
Renter or Homeowner—who is better off?
The answer comes from a fulfilling lifestyle and the ability to cumulate wealth that supports all the needs like healthcare, accommodation and a good life. Renters and homeowners share the ultimate goal to pass something on to people they love most. Realistically, homeowners are more likely doing that. It comes back to wealth in their home, that renters often have not saved enough.
Renter or homeowner who is better with money?
Statistically non-housing wealth and the amount of savings by renters are distressing. I hear often people saying, yep—homeowners have more money. Think twice, the housing costs for renters and homeowners are close to equal. But renters pay only rent, that is it. In contrast the homeowner has obligations to pay the bank in addition to all housing costs. Failing so, homeowners would lose their homes. That is why renters have more cash-flow. What keeps them away from putting few Dollars into a term-investment similar to homeowner’s mortgage repayments?
This situation reminds me how brutal the Ant and Grasshopper fable really can be. I met people with hungry kids, because they had to repay a mortgage and I had a tenant with 2500 Dollars weekly income who could not pay the rent due to excessive hire purchases.
Being good with money is a matter of attitude. Even if you can’t save a single Dollar from your income, you could save every Dollar received from bargain deals, rewards, windfalls, why not? Guaranteed, you would cumulate thousands of Dollars in one year. For money saving options here are plenty of tips.
Studies show the average renter is not as good in saving as his counterpart. A human issue as studies show. Regardless of whether you like it or not the gap between income growth and price increases widens and that is the real problem when retired as the income drops to a minimum. Who does not want some luxury in the autumn of life?
That are good reasons for making some sacrifices and saving for a “nest-egg”. Remember, you live longer in retirement, the time before that is limited.
Klauster Properties Ltd - Renter’s Blog
Rent or Own - Decision at some stage in life?
How much money do you think would you need?
Simple answer—as much as you can save. The size of your “nest-egg” determines how far you could travel if health and fitness permit. As they say—money is not everything, but sure it makes the retirement easier.
Be prepared, realistic numbers for a comfortable retirement are mind blowing!
Let me assume you have had a steady good income and want to retire on 50k annually. Divided by 12 months you need to carry on with approximately $4100 per month minus current superannuation ($1400/month), you would need about 2700 Dollars per month (32k per year) to subsidize your lifestyle.
How many years do you want to live in retirement? (Accept an excuse for that stupid question, but you have to come up with a number to play with).
For 20 years (age from 65 to 85) if you want to subsidize your lifestyle with 2000 Dollars a month, you will need 480,000 Dollars (20 years = 240 months multiplied by $2000). By $2500 per months the number would increase to $600,000. As you can see that number is approximately the same amount what home owners cumulate in their mortgage-free house over a lifetime in these days.
What age would you start saving?
Most people don’t start saving for a “nest-egg” early in life. Be aware of the “Golden Rule of Accumulation”, which describes a steady accumulative growth of saving. The meaning of the rule—the earlier you start saving, the less money you actually need to put aside.
Here is a simple example; save $230 a week, by 4% interest you have at the end of one year ca. 12,190 Dollars on your saving account. Do that for 10 years and you will be very pleased and after 20 years you are in a similar position as a homeowner (just forget about capital gain and the costs for repair/maintenance/replacements like new roof, cladding, hot water cylinder, spouting, windows, etc.)
Take this away
Renting allows a higher cash-flow. Using that advantage to save for a “nest-egg” at an early stage leads to cash for passive investments similar to homeowner’s mortgage. Getting started early and by using the rule of accumulation renters could enjoy a similar financial security as homeowners do with a changed attitude towards money. So be good with money in the first half of your life.
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Renter’s Blog lead to a real person, IT professional, investor, landlord and business owner with interests in sharing experiences. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Confession: I have been a happy renter for more than 25 years before buying a family home and later becoming involved in property investments and developments.
I used to live in apartments or rental homes, worked in many different countries and experienced different housing standards and renting cultures. I would love to see a social and legal frame work around housing policies that supports renters and landlords alike.