Plan to get the most out of ‘downsizing’

The prospect of a carefree retirement at the traditional age of 60 to 65 is becoming an increasingly remote possibility for many people.
However, says Harcourts Africa CEO Martin Schultheiss, proper planning can bring it closer, and one of the most important elements of that planning should be to pay off debts – including home loans - as early as possible.
“The Association for Savings and Investment (Asisa) calculated earlier this year that the average monthly pension in SA is less than R3000, and advised that people should keep working for as long as possible to preserve their capital instead of using it to fund their retirement.
“It also said consumers should use any spare cash while they were still earning to pay off debts and then invest more for retirement, even if this meant deferring their material aspirations for several years.
“And we would like to add that following this course will also enable homeowners to derive the most benefit from downsizing to a smaller property, which has become something of a staple in retirement planning.”
Schultheiss notes that the housing crash of 2008 and 2009 was particularly tough on the upper end of the market to which many 50 and 60-somethings had already graduated. “This narrowed the gap between the upper and middle markets and in many areas still means that smaller homes are now not all that much cheaper to buy.
“In addition, many homeowners borrowed heavily against the equity in their large properties during the last boom and increased their mortgage burdens, making it even more difficult for them to make a profit on trading down now.”
Nevertheless, he says, it still makes sense to downsize. “In fact we suggest that people make the move as soon as they become empty-nesters. Middle-aged homeowners spend between 20 and 50% of their incomes on housing costs and most can achieve considerable savings by moving to a smaller property that is cheaper to run and easier to maintain, even if their bond repayment is not that much lower than before.
“These savings can then be put towards paying off the property and other debt so that they are ‘free and clear’ when they do retire, and can enjoy a better quality of life in their later years.”

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