When you imagine your retirement, you’re doing all those bucket list trips, spending time with the grandchildren and living life to the full.

But the reality can be quite different.

Financial stress is a major concern for Kiwi retirees, who can find themselves strapped for cash quite early in retirement – and, especially on a fixed income, feeling like they have few options.

According to New Zealand Seniors’ Retirement Living Report 2022:

• One in five senior Kiwis do not feel financially secure; only 10 per cent felt ‘very secure’
• 40 per cent lack confidence in their financial situation in retirement
• 32 per cent reported ‘emerging needs in retirement they did not anticipate’
• 40 per cent said general financial pressure was one of their biggest worries when it came to future living arrangements.
• “In an ideal situation, you’d choose to retire with a freehold home, a rental property and a whole lot of investments,” says Andrew Ford, General Manager – Retail and Reverse Mortgages at Heartland Bank.

“But that’s not the case for most people. They often own their own house, but their savings only last five years.

“Then they need cash, either to pay off debt, repair a leaking roof, fix a car, or take that bucket list trip.

“People see their friends travelling and spending money on the grandkids, and they feel like they’re the only ones who can’t afford those things; there’s a real sense of failure.”

If you have a house, you have options

Among Kiwis aged 65 or over, 72 per cent own a home with no mortgage, while 12 per cent own a home and are still paying a mortgage, according to Te Ara Ahunga Ora/Retirement Commission.

House prices have soared in the past few years, so some retirees are sitting in million-dollar homes feeling anxious about day-to-day expenses like power bills and car repairs.

Although they may feel trapped, homeowners are lucky; having equity means you also have options.

You can choose to downsize and free up cash.

Or you can stay in your home and draw down the equity with a reverse mortgage, including a cash reserve facility that acts as an emergency fund.

Ford says Heartland is seeing an increasing number of Kiwis using a reverse mortgage to meet the gap between living costs and NZ Super.

“We know that nobody wants to take on debt in retirement,” Ford says.

“But you don’t really want to borrow money for a house or a car either – it’s just that sometimes you need to borrow money based on what you need at the time.

“For people who want to stay connected to their community and age in place, they can use their equity and not have to compromise on their quality of life.

“With guaranteed lifetime occupancy and knowing you’ll never owe more than the value of the house; there is real protection.”

Typical customer

Ford says a typical customer might be a couple aged 72 and 73, who borrow NZ$70,000 on a home worth NZ$800,000.

They use the money for some home maintenance, pay off some small residual debts, and no longer need to stress about everyday bills.

They take a monthly advance of NZ$1000 for five years, keeping NZ$120,000 in a cash reserve facility in case they need it – and they dip into that to take the grandkids to the Gold Coast or for private healthcare when one of them needs knee surgery.

“Then when they’re in their late seventies, they sell the house, which has gone up to NZ$900,000 in value, they pay back the reverse mortgage and use the remaining equity to buy into a retirement village.”

Despite some people being wary of reverse mortgages, Ford says they’re a product with an extremely satisfied customer base.

He remembers one client who had lost his wife and felt burdened with debt describe himself as “the happiest man in Rangiora” after just a small reverse mortgage allowed him to eliminate his other debts and stop worrying about basic expenses like power.

How cash reserve facility works

The cash reserve facility is a huge benefit to reverse mortgage customers, but one that gets little publicity.

It’s like a revolving credit mortgage but it doesn’t need to be repaid until the house is sold. It means you have instant access to an emergency fund that you can use for unexpected expenses, or to fund travel.

It’s a free facility with a NZ$70 access fee, and you’re only charged interest on the money you use. That means if you never dip into that facility, you never pay any costs. This can provide a better quality of life, and considerable peace of mind in retirement.

“We don’t see customers materially erode equity – instead, we see people be able to do the things they really want to do,” says Ford.

“I’ve been in the finance industry for over 20 years, and I’ve never been involved with a product that genuinely changes lives like a reverse mortgage.”