Being mortgage-free shouldn’t be your only plan for retirement – The Prosperity Project

Paying off the family home isn't the retirement plan it used to be. Photo / Vitaly Gariev

Home owners experiencing some relief from lower interest rates are being urged to utilise that breathing room to rethink their retirement strategy.

Lighthouse Financial mortgage director Michael Vincent told Nadine Higgins on The Prosperity Project podcast that “People have an over-reliance on the fact that paying off your home is going to be their ticket to retirement. They go, ‘If I pay this thing off by the time I’m 65, I’ll be home and hosed’.”

But Vincent says a mortgage-free home provides security – not income. “You can’t eat a brick, you can’t sell a bedroom to go on holiday. Unless you camp in the backyard and rent it out, it’s not going to give you a steady income stream.”

He points out that even a mortgage-free property costs money. “There’s something called rates, which a lot of people are feeling at the moment,” he said. “They’re going to keep getting more expensive.”

Kiwisaver alone, even when default contribution rates rise to 4% is also insufficient, Vincent argues. “When you talk to Australians about retirement and about their super funds, they’re not worried – and they don’t have to be ... that is not the case in New Zealand”.

Vincent acknowledges his bias towards property investment as a way to invest outside the family home – “I’m a mortgage broker, I love property” – but he’s also clear-eyed about the potential for future capital gains to match those of previous property cycles.

“I think Kiwis are going to have to be a lot smarter about where they deploy their funds in the property market to actually get a reasonable return over time.”

But he still believes utilising leverage can be a powerful tool to grow wealth. Vincent says he tells people to: “Start paying down that mortgage as quickly as you can. Once you’ve got some usable equity, then maybe look at an investment property or something similar where you can use that leverage to grow the size of the asset.”

Listen to the full episode of The Prosperity Project for more.

The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.