Housing liquidation and financial adequacy of divorced and widowed retirees in New Zealand
Using New Zealand's SoFIE panel data from 2002 to 2009, this study finds that divorced and widowed retirees face significant financial inadequacy risks when liquidating assets to rent, with divorced women, widowed Māori/Pacific Islanders, non-homeowners, and those in multi-dwelling units being the most vulnerable groups.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
In New Zealand, as in many other nations, the dream of a secure retirement has long been tied to the dream of owning a home. For decades, the prevailing assumption was that if you owned your house, you had a safety net for your later years. However, the landscape of retirement is shifting. The country's public pension, while universal, is designed to cover only the most basic needs, leaving many to rely on their own savings and assets to maintain a comfortable life. This reality places a heavy weight on housing wealth, which for many retirees represents their largest financial asset. Yet, the path to retirement is rarely a straight line. Life events such as divorce, separation, or the death of a spouse can fracture a household's financial foundation, forcing individuals to navigate complex decisions about their home and their future income. Understanding how these specific life changes affect a person's ability to afford their daily life after they stop working is crucial, especially as the population ages and more people find themselves living alone.
A team of researchers from the University of Otago and the Reserve Bank of New Zealand set out to examine this exact scenario. They focused on a group often overlooked in retirement planning: older adults who are divorced, separated, or widowed. These individuals face unique challenges because the dissolution of a marriage or partnership often involves splitting assets or losing a second income, creating a financial vulnerability that married couples or those who have never married might not experience. The researchers wanted to know if these retirees could still afford a decent standard of living if they made different choices about their housing. Specifically, they looked at what would happen if these individuals sold their homes, moved to smaller places, or rented, and how those choices impacted their ability to meet their financial needs.
To answer these questions, the team analyzed data from a long-running survey of New Zealand families, tracking thousands of individuals over eight years. They did not just look at how much money people had; they simulated five different future scenarios for each person. These scenarios ranged from selling the house entirely and moving in with family, to selling and renting a new place, to downsizing to a cheaper home, or even taking out a loan against the value of the house. By running these numbers through various measures of financial health, the researchers could see which groups were most at risk of falling into poverty if they had to rely on their housing wealth to survive.
The results painted a clear and concerning picture of who is most vulnerable. The study found that while selling a home and moving in with family often provided the best financial outcome, the option of selling and then paying rent was the most dangerous path for many. When the researchers accounted for the cost of renting, a specific set of groups emerged as being in the most precarious position. Divorced women, widowed people of Māori and Pacific Island descent, those who did not own their homes, and those living in multi-unit buildings were the most likely to face financial inadequacy. In other words, if these individuals were forced to sell their homes and pay rent, they would likely not have enough money to cover their basic living expenses.
The data also highlighted deep disparities based on gender and ethnicity. Divorced women were found to be significantly more vulnerable than divorced men, a gap likely driven by lower lifetime earnings and the financial burden of maintaining a home after a split. Similarly, widowed men tended to be in a better financial position than widowed women, partly because women often have less accumulated wealth to begin with. Ethnicity played a major role as well; while Māori and Pacific Island retirees often have strong family support networks that allow them to live with relatives, those who did not have that option and had to rent faced severe financial strain. The study noted that for these groups, the pre-retirement income was often so low that even before considering housing costs, they were already near the poverty line.
Perhaps the most striking finding was that the safety net of homeownership is not equally distributed. Those who owned their homes had a much higher chance of remaining financially secure, even when considering the costs of downsizing or taking out a reverse mortgage. In contrast, those who did not own a home, or who lived in multi-dwelling units, saw their financial security drop dramatically when the option of renting was introduced. The researchers concluded that the current housing market, with its rising rents and limited affordable options, leaves these specific groups with very few good choices. For many divorced women and widowed indigenous retirees, the choice between staying in a home they can no longer afford or moving into a rental they cannot pay for is a choice between financial ruin and homelessness.
The study suggests that the standard advice of "sell your house and live off the proceeds" does not work for everyone. For the most vulnerable retirees, selling a home to pay for rent can actually make their financial situation worse, not better. The authors argue that this highlights a need for better housing options tailored to these specific groups, such as smaller, affordable, and energy-efficient homes that do not require the high maintenance costs of a large family house. They also point to the need for legal and financial advice that helps women understand the long-term consequences of selling a home during a divorce. Ultimately, the research reveals that without targeted support and affordable housing solutions, the retirement years for a significant portion of New Zealand's divorced and widowed population could be defined by financial insecurity rather than the stability many hope for.
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