The $1 million question: Should I ditch the mortgage and just invest to afford my retirement?

Tuesday, 4 November 2025

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Choices, choices, choices

James* grew up in the generation influenced by the mantra that property ownership, above all else, is the best approach to secure long-term wealth.

But as we emerge from the Covid era and hear stories about families who have slipped into negative equity following large drops in house prices, that old rule for building wealth doesn’t appear as sturdy as it once did. There’s no guarantee house prices will keep going up indefinitely and being paper rich doesn’t necessarily mean you’ll have the retirement you always hoped for.

The other shadow hanging over all of this is that we will likely see changes coming to superannuation within the next two to three decades, which could alter the conditions for gaining access to Superannuation. A strategy of simply relying on Super may not be enough in the future.

The question facing James and many other New Zealanders is whether instead of buying a million dollar home, he should rent and invest the money he would have spent on a mortgage in assets like KiwiSaver or index funds (an investment that tracks the performance of a large group of companies, for example the S&P 500).

Could this approach offer more flexibility, income and long-term security?

What a house represents

No matter how progressive your thinking on investment, it can be difficult to view a house as simply an asset on a spreadsheet.

Research from Kiwi insights firm TRA has shown that what New Zealanders want more than anything else is financial stability. It ranks higher than even wealth or wellbeing.

“So the question then is what are the key building blocks of 'stability?' says TRA head of strategy Colleen Ryan.

“Houses have the advantage of being visibly tangible because they’re made of bricks and mortar. And when uncertainty is high, tangible ownership is seen to be safe. It may not be rational but people are driven by emotions even on matters as important as this.”

The point here lies in the level of security people find in owning a house, the bricks and mortar serving as the shelter from the harshness of the outside world.

But houseownership isn’t a given in every part of the world.

When renting is a norm

Financial adviser Tim Fairbrother, founder of Rival Wealth, says the idea of renting for long periods has been normalised in places like Germany and the Netherlands, where the large listed rental companies lease for 30 years.

As of July 2024, the Netherlands has gone a step further by prohibiting fixed-term rental contracts and mandating indefinite contracts in most cases. Portugal, Italy and Spain also offer long-term rentals to give their citizens greater security without having to purchase a home.

The problem with the New Zealand rental market is that we aren’t afforded the same protections here.

“For me the main issue is certainty,” says Fairbrother.

“If you own your home, you have the certainty to sell it and downsize if you choose too, and don’t have to be at the whim of a landlord telling you the tenancy has now finished as a 76-year-old and you have to find a new home.”

The other challenge with rental is that prices have outpaced inflation over the last 25 years, meaning you also need to factor in how much more you will be paying in rent over time.

Without proper protections in place, renting long term can prove quite risky – particularly if laws shift over time to favour landlords more than renters.

A big advantage of a mortgage is that it forces investing behaviour with weekly payments. The thought of losing the security of your home is a powerful motivator, which is absent if you’re simply investing independently.

Check the numbers

In investing we often create false dichotomies, when there could be more than two options at our disposal.

Fairbrother says the dilemma presented by James is an example of this, because there are other ways to manage a portfolio. It doesn’t have to be one or the other.

A fully paid off house valued at $1 million today would have been worth far less when you first bought it, explains Fairbrother.

Ostensibly, this means you could sell the house and create the investment fund once you retire. However, it will be crucial to run the numbers carefully and also consider where you would live.

Fairbrother says the equivalent of a $1m house will cost approximately $52,000 per year to rent.

In contrast, a balanced or conservative investment fund will earn roughly earn 6% per annum (minus tax), which amounts to around $40,000 per year.

“Renting will not be covered by the investments, and you will have to use your NZ super to top up,” Fairbrother says.

You could, of course, put your investments into a more aggressive fund, but this will come with bigger risks in the event of a market dip.

Super question

Hanging over all of this is the important question about what might happen to New Zealand’s Superannuation scheme in the longer term and whether it will truly be enough to cover your expenses in the future.

Sam Stubbs, the founder of Simplicity KiwiSaver, says James’ question fundamentally comes down to role your expect Super to play.

Living in a million dollar house won’t make you feel wealthy if you’re struggling to make ends meet in retirement.

“If housing security is tough and you can live on Super, then it’s better to have a house,” says Stubbs.

“But if you have housing choices and need an additional income, then it’s better to [opt for an investment fund].”

This is, however, based on the current settings of Super, which could be subject to change in the near future.

A report from the Treasury in September called for the pension age to be lifted to 72 to ensure Government debt doesn’t balloon over time.

The National Party has said it wants to increase the pension age to 67, but this has not been enacted by the coalition Government.

Despite the current lack of action on this issue, change will eventually come due to the pressure New Zealand’s ageing population will place on resources.

Politicians across the political spectrum are calling on New Zealanders to contribute more to KiwiSaver, a clear indication clear indication they believe those savings will need to supplement Super in the future.

James’ question goes deeper than whether we should put a million dollars here or there. It’s fundamentally about how we retire and how comfortable we’ll be in that retirement.

It’s a question about security as much as it is about what we should do with our money. It’s clear that the old rules previously relied on aren’t as steadfast as they once were. This doesn’t mean all hope is lost. It just means we need to more strategic and identify what we need to do to get to the retirement we want. There’s no single path, but the choices we make early will play a major role in determining whether we get there.

*Disclaimer: The information in this article is of a general nature and is not intended to be personalised financial advice. The name of the individual in this story has been changed to protect their privacy.

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