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Planning For Retirement

You never know when your world might dramatically change, so now is the time to put a plan in place if you’re heading for retirement, writes John Bolton.

By: John Bolton

1 January 2021

Most of us store a large part of our wealth in property. It could be in our owner-occupied home, a holiday house or an investment portfolio. And a large number of property owners are starting to head towards retirement.

If that’s you, then now is the time to clearly think through your retirement strategy and what that means for your investment property portfolio. You should be asking yourself lots of questions: when do you intend to sell properties? What loan-to-value ratio (LVR) can you sustain in retirement? How much free cashflow do you need? Can you access capital when you need it?

For example, during Covid-19 we had an 80-year-old client with a commercial property lose his rent for a few months. The bank wasn’t prepared to lend him more funds even though his LVR was less than 20%.

You Never Know When Your World Might Dramatically Change

Covid-19 is a good example, but equally it could be a health scare or something happening to your family that could quickly shake things up. Maybe you want to help one of your adult children into a house? Whatever you want to do, it will require accessing your capital.

‘You don’t spend your life building up wealth to then have someone else dictating how you’re going to spend it or not spend it’

For a lot of Kiwis their life savings are tied up in property and it’s a core part of their retirement. Maybe you’ll want to enjoy it and buy a boat or a holiday home, again requiring the release of capital.

Recently another client (aged 79) was buying an investment property to increase their passive income and their mortgage application was declined by three lenders before we approving it through our P2P mortgage platform.

As your income reduces and you head toward 70, lenders will be increasingly difficult to deal with.

If you want to sell a property to free up some capital, but it’s also used as security across other lending, the lender may require that all lending is repaid. They will base that on your age and a lack of demonstrated servicing, especially on a principal-and-interest mortgage over a shorter term. Even at the age of 60 you’ll be lucky to get a ten-year loan term.

We are seeing this play out across a range of clients and scenarios that could be avoided with some forward planning.

What Can You Do Now?

• Split your lending and securities across multiple lenders.
• Make sure you have extended your interest-only terms.
• Ensure you have access to revolving credit funds.

This way when you sell a property you keep the net proceeds, and you control the process. You also minimise your cash outflows and have quick access to emergency funds.

When I review a client, I work through your portfolio, property by property. It is really important to build up a granular strategy and to build in lots of flexibility in case the unexpected happens.

You don’t spend your life building up wealth to then have someone else dictating how you’re going to spend it or not spend it!

It costs nothing to sit down with a Squirrel mortgage adviser and discuss your plan. Get in touch by calling 0800 21 22 30 or visit squirrel.co.nz.

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