What your home means to you in retirement
The family home is the preferred housing solution for an ageing population. But how do we support staying at home as long as possible?
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Key points
Australia has a high level of home ownership, but a relatively modest Age Pension
Most retirees want to stay in their own homes
Unlocking the equity in your home can allow you to fund your lifestyle and meet other expenses.
Of the 700 or so Australians retiring every day, about seven in 10 live in a home that they own.
Meanwhile, more than 85% of retirees have indicated that they don’t want to downsize and move to another neighbourhood.
They want to remain in their own house, in the community they know and love.
Australia’s home ownership rates in retirement are very high compared to other nations joined with the Organisation for Economic Co-operation and Development (OEDC). That generally means lower living expenses for those on an Age Pension and therefore lower pension payments here than in some other countries.
For this reason, the Age Pension accounts for a relatively small proportion of the national GDP.
The family home is the most important asset in retirement, by far, and equity in that home is one of five funding levers at the disposal of Australian retirees. The others are the Age Pension, superannuation, private savings and investments, and work income.
At a more personal level, home ownership can help break social isolation by supporting your ongoing engagement within the local neighbourhood, and it may help fund more choice when and if the need for aged care arises.
Despite strong financial incentives to sell up, buy a cheaper property (albeit in a less desirable location), and move the proceeds of the sale into superannuation, downsizing has yet to be widely embraced.
Recent research by Professor Rachel Ong ViforJ and others showed that 67% of retirees strongly preferred to stay in their own neighbourhood, and 19% had a moderate desire to do so. That’s 86% of people who want to stay where they are.
Professor Deborah Ralston, a researcher and thought leader in financial services, says, “Homes are a critical part of the retirement system. For many they offer strong psychological security. They are not only a place to live but are a substantial part of householder wealth and should be considered when planning retirement income.
“This is especially important for those older Australians who have not had the benefit of higher superannuation contributions over their working lives.”
Holding onto the family home doesn’t necessarily mean missing out in retirement.
There are two main ways of accessing the wealth in your home to support your lifestyle or other more specific needs in retirement.
The Home Equity Access Scheme (HEAS) allows all retirees, not just those on an Age Pension, to access the wealth in their homes in the form of a government loan.
This loan is paid in fortnightly instalments, or a twice-yearly lump sum up to the rate of 150% of a full Age Pension.
The second way is a Household Loan, which allows those with insufficient retirement savings to unlock a portion of their home wealth to access income and/or capital to provide more flexibility and choice in their later years.
A Household Loan is often more suited to covering some of the major components of long-term retirement such as refinancing a bank mortgage, renovating the home for an age-appropriate retirement, funding aged care, and potentially giving to children and grandchildren through the “Bank of Mum and Dad”.
At the end of the day, it’s your home and it’s up to you what you decide to do. But it’s good to know what your options are.
For more information:
Download the free e-guide 6 Ways to Use Your Home Equity.
Or use Household Capital’s Home Equity Calculator to calculate the equity in your home.
Prefer to speak to a real person?
Speak with one of Household Capital’s retirement specialists for a 15-minute no-obligation call on 1300 699 624. Or book a time that suits you to ask questions and discuss your needs. Schedule a call.
This document is provided for informational purposes only and reflects, as of the date of publication, the facts as understood by Household Capital and/or sourced providers. Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.
