A cup of cold sick, on an otherwise lovely day…
So here’s the thing – an inconvenient truth herein lies, when one stops work before they die. Today, 1 in 3 are 65 with a mortgage – what would tomorrow’s you look like?*.
Yip, I may be about to ruin your day. It’s kind of what I do sometimes – but stay with me here!
As a couple one of you is more likely to get cancer, than getting debt-free**. That’s f#$%d up!
*BNZ conducted some research in 2015 and discovered that one out of three mortgage holders were over 65 years old. The traditional view of working hard to get debt-free in your mid-50’s with the hope of making a crap load of cash to fund your retirement after that, is broken. Very broken. Yet many still have this mindset (most likely as their main reference point is their parents, who actually could have done this).
Here’s why your parents model of retirement is screwed.
Firstly, it assumes that you’re going to be able to work all the way until retirement. Statistically, most insurance people will tell you that a couple who doesn’t smoke, will have a 27% chance of losing income due to illness (not accident) for more than 6 months. Lost income due to illness costs way more than just missing the income for 6 months – It’s part of a bigger, usually more destructive story. If income is interrupted on the journey to retirement, it’s all about survival, not provisioning. The lost ground of losing income for 6 months could take years to get back again.
Secondly, back in the day, interest rates were high and property value gains (nominally) were modest (certainly not enough to fund 30 years in retirement when they sold their home!). These days, interest rates are (persistently) low, and nominal gains are very high. If we use the same paradigm as our parents did to build wealth for retirement, (ie, pay down mortgage aggressively and then save), we’re in for a rude awakening when income eventually stops rolling in. Accumulation of growth assets for the long term, may be better than relying on compounding interest in a savings account, to provision for retirement.
Lastly, your children are way more of a liability than we think. You may be reading this and you can recall how your parents helped you into the housing market (if you were lucky!). That may have taken $100k out of their retirement provisioning by doing that. Assuming property growth rates continue at historical rates, that $100k could be more like $500k in 25 years when it’s your turn to help your kids out. Have you accounted for that in your retirement plan? Heck, do you even have a retirement plan??!
So…if you want to get debt free by retirement, here’s how getting cancer may do the trick.
**Between the ages of 18-65, there’s a 46% chance you could suffer from a critical disease/diagnosis (like cancer, stroke, or heart disease).
So here’s the slightly clever, albeit sick and twisted thing you could do, to get debt free sooner. Get insurance that pays out if you get sick!
Let me explain, as many a Kiwi has a slightly cynical view on insurance. Most just don’t think that an insurance company can be trusted and I suppose in some cases, this cynicism is justified…but not here, and here’s why: 46% used above is a claims stats – this comes from the claims paid out to people for an insurance policy known in NZ as trauma insurance. It’s not a sales pitch, it’s a stat.
Taking into consideration and even allowing for a mistake in the numbers, I’d still suggest that getting debt free by getting sick, is more likely scenario to plan for.
Of course this assumes you have trauma insurance, and that the policy is a good one etc.
Hopefully this solidifies two truths: Due to the rapid rise of property values and persistently low interest rates, the old paradigm of planning for retirement is dead. Real dead.
Secondly, in a sick way, the statistics behind your future sickness could get you the financial security you’re working hard for – much more efficiently.
So, first home buyer…Do you really think you can nail this new mortgage you’re about to take out with your net income over 30 years?
If you’re ready to start working for the needs of tomorrow’s you, get in contact with us now.
Sources:
*https://www.stuff.co.nz/business/money/72598973/A-third-of-Kiwis-will-have-a-mortgage-at-65
**Working life is age 18 to 65. Source: NZ Life Tables, Davies Financial and Actuarial, 2013. Temporarily Disabled meaning unable to work for six months
