Dutch people who build up little or no additional pension through their employer, but do have assets in the form of their own home, must pay extra attention to whether they can survive on an AOW benefit by the time they stop working.
This is a scenario that could be realistic for self-employed people, among others, if a self-employed entrepreneur has not arranged enough with a supplementary pension pot on top of the AOW.
If you pay off a mortgage on your own home properly, you have the advantage that part of your housing costs will disappear when you stop working. But that doesn’t mean you no longer have to pay for a house.
Business Insider recently calculated what fixed costs a homeowner with a home that is now worth around 400,000 euros must take into account if a house is mortgage-free. In addition to an amount that you must reserve for maintenance costs, you also pay tax on the notional rental value, the municipality will come to you for the property tax levy and you will need at least building insurance.
On an annual basis, with a house weighing four tons, you currently have to take into account around 4,000 euros in the above four cost items, or approximately 330 euros per month. These are fixed costs that only apply to homeowners.
On top of that, there are of course additional costs, such as home contents insurance and waste and sewerage taxes, but these also apply to tenants.
It is important that the notional rental value will count more heavily in the coming years for homeowners with a low or no mortgage. With an average income, you currently pay 86 euros in tax on the notional rental value for a home of 400,000 euros, but that will increase to 517 euros over the next 25 years based on the current tax rules.
Fixed costs of own home without mortgage versus AOW
Let’s start with the above-mentioned monthly fixed costs of 330 euros for a home without a mortgage. How does this relate to an AOW benefit?
The AOW has two variants: a benefit for single people and a benefit for someone who is married or cohabiting. The benefit for a single person is higher than the benefit for someone with a partner.
Since July 1 this year, the net AOW benefit has been 1,379 euros per month for a single person, if you have no other pension income. For someone with a partner, this amounts to 939 euros per month, if there is no supplementary pension income.
Suppose you spend 330 euros per month on the reservation for maintenance costs, the tax on the notional rental value, the property tax and the building insurance. And you add 70 euros per month for home contents insurance and waste and sewerage taxes. In total you will spend 400 euros per month for fixed housing costs without a mortgage.
If you compare this to the net AOW benefit for a single person, this amounts to 29 percent of the AOW benefit of 1,379 euros per month.
The comparison for partners with only AOW is a bit more difficult, because this obviously depends on what kind of home you have together. If you charge 200 euros per partner for fixed housing costs, this amounts to 21 percent of the AOW benefit for a net AOW benefit of 939 euros per partner.
The composition of other expenses naturally plays a major role in the question of whether or not housing costs without a mortgage take a significant bite out of an AOW benefit. But in any case, the above sums show how important it is to have little or no mortgage payments if you build up relatively little pension in addition to the AOW and do have your own home.