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Is your house part of your retirement plan?

How will you manage it?

Many South Africans worry about having enough money at retirement. Even if they have saved their entire working lives, they may find that they still come up short of what they need.

These concerns about not being able to generate enough income from retirement savings are one of the biggest causes of financial stress for South African investors. Nobody wants to be dependent on the government or become a burden to their children.

One thing many people in this country have in their favour, however, is that we have a love of physical property. Owning their own home is a priority for a lot of South Africans.

What this means is that upon reaching retirement many people may find that while their pension savings may have fallen short of what they need, they have significant additional value in their homes. In some cases where a house has been owned for many years, the asset they are living in may be worth more than all their other assets combined.

Freeing up this value potentially offers at least a partial solution to their retirement funding problem. However, it is one that has to be very carefully considered, because, of course, they still need somewhere to live.

Mark Lapedus, divisional director for product development at Liberty, says that anyone in this position needs to consider what their options might be.

“You could downsize by selling your home, buying something cheaper and using the difference to live off,” he says. “Or you could sell the property and find something to rent, which frees you up from the responsibility of being a property owner. Which of these you choose is probably going to depend on how short you are in terms of retirement capital, and some people may even transition from one to the other.”

Anyone who is going to sell their property to fund their retirement, must however act prudently. For someone who has not saved at all and the only asset they have is their home, this may be more difficult, but this is a process that should be carefully managed.

This is because, just like any other asset, property values do not move in a straight line. Sellers have to consider the market and whether they are getting full value for their asset. The last thing anyone would want is to realise far less than they could have because they sold at the wrong time.

The current environment is a good example. Apart from a few specific locations, the South African property market in general is depressed. It is therefore probably not the best time to be trying to sell a home.

This means that someone retiring now with limited savings, but a valuable property asset, would need to think very carefully about how long they could live off what they currently have while waiting for house prices to improve. They don’t want to be left in a situation where they are forced to sell in desperation because they have nothing else left, but they also don’t want to lose out on too much potential value.

This is why good financial advice at this stage can be extremely valuable. Formulating a plan for how much someone would need from their property and setting a reasonable selling price based on that rather than on some hopeful estimate of where property prices might go would take some of the emotion out of the decision.

A good financial planner could also help someone determine how long they could reasonably live off their other savings, and at what draw down rate, before they would deplete too much. This would provide a reasonable time frame in which a sale would need to be made.

“Deciding when to sell, for how much, and what to do with the proceeds can all be a very difficult decisions,” says Lapedus. “But good financial advice can go a long way to making that process easier and ensuring that you get the most out of the assets you have.”

Brought to you by Liberty.

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It really needs to be emphasised – smaller houses are the new vogue. Downsizing size of house doesn’t necessarily mean downsizing cost – especially if you’re planning on moving from free standing property into retirement village/complex type set up. A lot of people get caught in this, expecting to be able to release capital from the house when they move.

Carmen, you are correct. We sold our large free standing home in the suburbs to move into a smaller home in a lifestyle estate that has amenities for retirees. It cost considerably more than we sold our house for but no regrets and loving it here. The security and clean and maintained streets alone make it worthwhile.

People, a house is not a retirement plan. You need at least R300 in retirement investments for every R1 you intent on spending in retirement per month.

Typically if you downsize you may only release around R1m bucks if you are lucky. That’s only R3333 per month of income generated from the R1m. Good luck living on that.

Here’s a conundrum I don’t get – supposedly freehold properties are becoming difficult to sell, or, maybe you are not achieving your price on sale. If on the other hand if you are paying more in a leafy secured enclave and you require a bond how is this bond being acquired and funded as most banks don’t want to lend funds beyond a persons age 65. Also if you are selling and buying there are transfer fees and registration fees. Am I to assume that people are using capital to fund these lifestyle changes, and if this is true then they are certainly compromising their pensioner income into the future

Grahamcr,it all depends on personal circumstances. We were lucky and sold our house at our price very quickly. We used some discretionary savings to fund our lifestyle change. These are not part of our pension generating funds so no impact on income. Best decision ever.

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9 NOV 2017 EVENT
Liberty Retire Well Masterclass

Liberty Retire Well Masterclass

Join our one day Masterclass on November 9 2017
Summer Place - 69 Melville Rd, Hyde Park, Johannesburg

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