Your home

Your home is probably the biggest investment you'll make during your lifetime. When you plan for your retirement, you need to think about your retirement home as a non-financial asset. It gives you shelter and accommodation but not spending money.

One of the biggest retirement planning decisions you need to make is how much of your total net worth you keep in your house, and how much you put into other investments that can produce income to supplement New Zealand Superannuation.

For example, you could aim for a $200,000 home and investments of $50,000, or a $150,000 home and investments of $100,000; but a $300,000 home and $150,000 investments may be out of reach.

How will you decide the right investment mix of house value and investments? There are three strategies to consider:

Strategy 1: A conservative, low risk approach.

You view your home as providing necessary accommodation - not as an investment.

You aim for a modest home, or successive homes as family circumstances change, and don't expect any major changes in real value over the years. When you retire, you may stay in the family home or sell it and buy a retirement home with the proceeds. You view saving for retirement as a separate exercise, and you save hard for retirement.

Strategy 2: Involves an investment risk

Here, much of your potential retirement income depends on the state of the property market when you decide to retire. That's a risk you are taking.

You view your home as accommodation and an investment. You seek to acquire or develop a home in a popular and/or growth area where you expect values to increase. You may make improvements to enhance the home's value. You sell the home on or before retirement, and expect to make a good profit. Then you buy a less expensive home. The surplus funds are an important part of your retirement fund. A problem is that few people actually want a more modest home when the time comes to sell.

Strategy 3: The lifestyle approach

This involves sacrificing some retirement income and possibly other optional activities such as travel or club membership to enjoy your own amenities.

You work hard through your life to afford a home you love. On retirement, you see your home, location and facilities (such as a garden or pool) as an important part of your retirement lifestyle. You are prepared to sacrifice some income to enjoy a higher quality home.

Your Decision

In the end, the strategy you choose will be a balance of two big factors - how much you like your home, and how much income you want in retirement. Consider the options, decide your strategy, then go back to the calculators to complete your retirement planning.