Kiwis, pride themselves on being forward-thinking, but when it comes to planning for retirement, many have their heads in the sand! With increasing life expectancy, skyrocketing living costs, and the uncertain long-term viability of government superannuation, it’s clear that the traditional path of relying on superannuation and KiwiSaver contributions may not provide a comfortable retirement. Yet, despite this looming shortfall, many Kiwis are doing nothing about it! Why is this, and what can be done to bridge the gap?
The Realities of Superannuation and KiwiSaver
Currently, New Zealand’s superannuation system offers a universal pension to citizens aged 65 and over, funded through general taxation. While this provides a baseline level of income, for most retirees, it’s far from sufficient to cover the full cost of living, particularly when healthcare and housing costs are taken into account.
Adding to the challenge, the average KiwiSaver balance tends to remain far below the ideal retirement savings level. For many people, low contributions and inconsistent investment strategies mean their savings won’t stretch nearly far enough to enjoy retirement freedom.
Stats show that many New Zealanders’ balances may be only $50,000 as they approach retirement age. The stark reality is that relying on these two income sources alone could leave retirees with limited options and a bare-bones existence.
Facing Retirement with Superannuation Alone vs. Owning Investment Properties
Now, imagine two different scenarios for retirement. One individual relies entirely on the standard superannuation and their KiwiSaver account, while another takes control of their financial future by investing in property.
Superannuation coupled with a modest KiwiSaver yield might equate to weekly living expenses being met, but luxuries like travel, gifts for grandchildren, and spontaneous outings may remain out of reach. It’s not just about a lack of disposable income - it’s about the lack of options and living with financial constraints during what should be care-free years.
On the other hand, someone who owns even just two rental properties could generate an entirely different outcome. Over 10 years, property gained through home equity could see rental returns grow, while potential capital gains compound the value of the portfolio. By the time retirement rolls around, passive rental income could provide an additional stream of revenue, complementing superannuation and KiwiSaver savings, and allowing a lifestyle with more comfort and fewer financial worries.
The Investment Property Solution
If KiwiSaver alone isn’t enough and superannuation isn’t sustainable, what steps can Kiwis take? One practical and underestimated approach is leveraging the equity in their homes to kickstart property investment - without requiring upfront cash.
Here’s how it works:
1. Assess Existing Home EquityHomeowners accumulate equity as they pay down their mortgage or as their property’s value increases. This equity can serve as a powerful asset, functioning like a springboard to finance an investment property without needing cash in hand.
2. Acquire Your First PropertyUsing equity, you can secure a deposit for an investment property. Lenders will consider the equity in your current home as collateral, enabling you to purchase without substantial out-of-pocket expenses. Rental income from the property can cover mortgage repayments, turning it into a self-sustaining asset.
3. Expand Over TimeOnce the first property generates positive cash flow or appreciates in value (typically after 2 – 5 years), you can use its equity to invest in another property. With strategic management, this creates a snowball effect, growing your portfolio without requiring additional capital contribution beyond the initial equity tap.
4. Reap Long-Term BenefitsBy retirement, owning two rental properties could provide ongoing rental income while capital appreciation boosts your overall net worth. These properties offer both immediate cash flow and an asset base you can liquidate if necessary, moving beyond the limits of superannuation.
Why Proactive Planning Matters
The biggest risk for many Kiwis is doing nothing! It’s easy to put financial planning on the backburner, assuming you’ll figure it out later. But the earlier you act, the greater your potential to secure a comfortable retirement.
The wealth-generation potential of property investment far outpaces that of sitting idly with KiwiSaver contributions alone. While every investment carries a degree of risk, real estate’s stability as a long-term investment class makes it particularly appealing for those looking to supplement retirement funds.
Final Thoughts
Kiwis who choose to sit on their hands regarding retirement planning may face harsh realities in their later years - tight budgets, limited opportunities, and financial uncertainty. But there’s another path. Leveraging home equity to invest in real estate offers a powerful way to take control of your future, generate passive income, and live a fulfilling retirement.
It’s time for New Zealanders to shift their mindset. When the tools to improve your retirement outlook are within reach, why wait? Take action now to secure not just a retirement - but the retirement you’ve always dreamed of.
Ready to explore a more secure retirement?
Schedule a free, no-obligation 15-minute consultation with our experienced property investment advisors to discuss how leveraging your home equity can empower your financial future.