Rethinking Retirement Funding

Australia’s retirees are being financially challenged like never before:

• Of the five million or so over 60s, around 1.8 million are still paying a mortgage – and of those, more than 50,000 are living on less than $1,000 per month after paying that mortgage
• Historically low interest rates are impacting retirement income, exacerbated by limited government action on deeming rates
• At the same time, the cost of living is going up, particularly utilities, food, medical and transport costs
• More than 130,000 people are waiting for government funded in-home care, with no guarantee of getting the level of care required
• Refundable Accommodation Deposits (RADs) can range from $450,000 to $1 million in metropolitan areas.

We are living longer than ever, and people look forward to a long, active retirement. At the same time, many don’t have the savings to fund twenty or thirty years of retirement.

There is the challenge – a healthcare system and standard of living that’s resulted in longer, healthier lives and a growing number of people who can’t adequately fund their retirement.

As shown in figure one, Australians experience high levels of relative poverty in retirement. This begs the question…how can a wealthy nation with broadly distributed wealth fail to deliver adequate retirement outcomes for so many of its retired citizens?

Figure one: % of 65 years plus experiencing relative poverty in retirement

The answer?

For many older Australians, the majority of their wealth is tied up in their family home. Although 80% of Australians own their own home at retirement and share a strong desire to remain at home, our economic system has failed to provide adequate access to savings accumulated in the family home to improve retirement funding.

What are the options?

These untapped savings are a valuable resource that can be used to improve your retirement funding. There are three key ways you can access these savings.

Downsizing

Downsizing often results in disruption and dislocation – and doesn’t always deliver financial advantage. Although the government has financial incentives to encourage downsizing, it’s not for everybody.

Centrelink Pension Loans Scheme

The Centrelink administered Pensions Loans Scheme (PLS) is available to all Australians of Age Pension age currently receiving an eligible pension. Through this scheme, the government draws on the recipient’s home equity to provide a regular income stream alongside the pension. It does not provide capital for contingencies or other purposes, including renovations or funding aged care needs.

Home equity

Retirees have more than $1 trillion saved in their home equity, a potentially valuable resource. It can be used to improve regular income and fund age-appropriate in-home care. A lump sum could be used for home renovations or to fund the transition to aged care.

How can Household Capital help?

Household Capital has pioneered a new model of home equity lending, a Household Transfer®. If you’re retired and aged 60+, you can access a portion of your home equity to improve your retirement funding. You maintain ownership of your home while drawing on your home equity to top-up your superannuation or investments, renovate your home or access enhanced care options.

Responsible access to home equity can help you live the retirement lifestyle you envisaged as well as meet your long term retirement needs…it can help you Live Well At Home.

Case study one – Top up retirement funding

Julia, 72, lives alone in Glen Iris, a leafy suburb in Melbourne’s south-east. She’s well connected with her local community; she’s an active member of Ashburton Bowls, her local bowling club, and regularly attends events run by her local Probus Club.

Julia’s financial adviser referred her Household Capital. Although she receives a full Age Pension, she had only $10,000 left in super. Julia was concerned she wouldn’t have enough to fund her relatively modest lifestyle and wanted a contingency fund for ‘peace of mind.’

Although her age and home value would have permitted a larger drawdown, Julia wanted just $80,000, a figure she and her financial adviser believed sufficient to top up her existing funds and extend her retirement income. This also leaves sufficient equity should Julia need to draw further funds from her home equity in the future, for living or a transition to aged care.

If you’re interested to see how the savings in your home could improve your retirement funding, try Household Capital’s simple calculator