By MARY HOLM
Q: I have recently separated after 33 years. A settlement has been achieved and I have $70,000.
My question is what to do?
I am 53 years young with no dependent children, working full time earning $28,000 a year. Health not as good as it used to be due to hard physical work during the marriage.
What would be my best option?
* Take a mortgage of up to $100,000 and buy a house for about $165,000, keeping in mind the cost of a house on today's market. I live in a middle-sized city.
Can I afford to take this expense on and all other related costs to owning my own home?
* Rent a place a little more upmarket than I can buy and then invest my money. If so, where do I invest to give me the best rewards for retirement in 12 years?
I work as a cafe worker and lack the skills to change job direction at this stage in life.
Please help me.
A: I would buy a house - or perhaps a unit - to keep expenses down.
If, instead, you rent and invest elsewhere, I'm assuming you will probably use your savings to buy a home when you retire anyway.
Most retired people like to have the security of owning their home, preferably mortgage-free.
If you rent, you never know when the landlord will sell and you'll have to move, or when rents will rise. It's a great feeling to have your accommodation taken care of, and the freedom to decorate as you want, develop a garden and so on.
The choice boils down, then, to whether you buy now or later.
Renting and investing elsewhere can work well for younger people. Sometimes they will end up with more in retirement than if they had bought a house.
To do that, though, they probably need to pay relatively low rent. Your idea of renting something upmarket reduces the chances of coming out on top.
They also need to invest in high-return assets, probably shares or a share fund. And the trouble with shares is that, over shorter periods, they sometimes perform badly.
True, 12 years is not short term. I often define long term as 10 years-plus, adding that if you invest in shares for a decade or more, there's little chance you will lose money and a pretty good chance you will do well.
Even so, over some 12-year periods, returns are only mediocre. We never know what lies ahead for the markets.
What's more, it sounds as if you haven't got much investment experience, so you might find the ups and downs of the sharemarket rather nerve-wracking.
You could always just put your money in term deposits. But you probably wouldn't end up with as much wealth in retirement as if you bought a house. The low-risk strategy, if you want to own a house in 12 years, is to own one now.
The next question is: How much should you spend on it?
If you're planning to retire in 12 years, lenders will probably give you only a 12-year mortgage because after retirement it will be hard to meet mortgage payments.
Monthly payments on a 12-year $100,000 loan at 8 per cent are about $1080 - or nearly $13,000 a year.
Get estimates of insurance and rates on a $165,000 house and allow, say, $1000 a year for maintenance on a place in pretty good condition - be sure to get a valuer or builder to check it out before buying.
How much more is that total than your present rent?
If it's too much to cope with, consider a $75,000 loan, with annual payments totalling about $9740, or a $50,000 loan, with payments totalling about $6495.
You might not get much of a house for $120,000, but there should be units at that price. And rates, insurance and maintenance on them would be cheaper.
There's another relevant question these days, too. Should you wait a while, in the hope that house prices in your area will fall?
The answer: Nobody knows. It might be worth watching from the sidelines for a few months, possibly even waiting until next winter, when prices tend to weaken.
Or you could look around and, if you see something you like, make a really low offer for it.
If you're in no big rush to buy, you might be able to drive a hard bargain.
Finally, I can appreciate that you may not feel like improving your job skills at 53. But you did say 53 years "young". And there's a big shortage of skilled workers these days.
You could look into part-time courses that could get you qualified to earn higher pay. With 12 years to retirement, earning another, say, $10,000 a year would make a big difference. Just a thought. And good luck.
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