You’ve always dreamed of a comfortable retirement. But, as that time gets closer, you’re not sure you’ll have the money to do the things you want.
In reality, you may be sitting on a nest egg that could be used to fund a better life.
The government’s Retirement Income Review found that few retirees are using the equity in their home to support their standard of living in retirement.
A survey of nearly 6,000 retirees by National Seniors found that around 33.9 per cent had already chosen to relocate, while 24 per cent were planning to.
Downsizing has the potential to free up cash to boost your retirement income. A bonus: a smaller home may also be easier to maintain, and cheaper to heat and cool.
Don’t want to relocate? There are other options for using your home equity to boost your retirement income and live the life you want.
Assess the market
Invite a real estate agent to appraise your property, so you have an accurate idea of what it’s worth. That’s a smart idea even if you aren’t relocating.
You can also take advantage of Downsizing.com.au's partnership with Agent Select, as part of which you can get a free property price appraisal.
If you are up for a change of scenery, research how much a new home will cost, and work out how much cash you will have left over.
Remember to include real estate agent fees, applicable stamp duty, legal fees and, of course, removalists.
Your decision about where you move to will be guided not only by price but how and where you want to live – e.g. an apartment with no lawns to mow, or a duplex with a garden you can tend; a home near the beach, or close to conveniences, family or friends.
Get a concession from the government
So, you’ve decided to sell and put the money you have left over after you buy a new home into your superannuation. The good news is that the 2017 Federal Budget introduced a non-concessional ‘downsizing’ super contribution of $300,000 ($600,000 per couple) that came into force in the 2018-2019 tax year. This contribution forms part of the tax free component of your fund.
According to figures released by the Australian Government, retirees on average add around $200,000 to their superannuation fund when using this scheme.
If you are drawing the Age Pension, and are not a self-funded retiree, any change in your superannuation balance will count towards the assets test. Single homeowners are allowed $268,000 in assets; couples $401,500. Single non-homeowners may have $482,500 and couples $616,000.
Avoid or reduce stamp duty
If you are looking to downsize, you could save money by taking advantage of stamp duty concessions which are in place across Australia.
Victoria, the Australian Capital Territory, Northern Territory, Western Australia and Tasmania offer stamp duty discounts for seniors and pensioners, according to an analysis by www.downsizing.com.au.
Because of the price threshold of these schemes, you will typically save more if you move to a regional area than the city.
In New South Wales, where no discounts are offered to seniors, the government is weighing up whether stamp duty should be through an ongoing land tax payment, rather than a lump sum fee.
Consider staying in your home and taking a loan
If you don’t want to relocate, you may be interested in non-downsizing equity release products. It’s essential to discuss these with an independent financial adviser as they are complex.
One of the most common products is a reverse mortgage from a bank. According to ASIC's MoneySmart website, if you are 60, you may be able to borrow up to 20 per cent of the value of your home and get a regular income, a line of credit, or a mix of all three. As you age, the percentage you can borrow goes up, until it reaches a specified loan-to-valuation ratio.
While you don’t have to make repayments while you are living in your home – but may choose to – the entire loan, including compound interest and fees, must be repaid when your home is sold. This reverse mortgage calculator will give you a guide to some costs.
Another option is home reversion, where you sell a percentage of the future value of your home while you live there. You get a lump sum and, when the house is sold, the home reversion provider gets the percentage.
According to the MoneySmart website, there is a range of advantages and disadvantages to this arrangement. It notes that the arrangement allows retirees to get upfront cash for urgent needs but can also be financially complex.
An alternative option is the Australian Government’s Pension Loan Scheme, which is like a reverse mortgage with an interest rate of 4.5 per cent.
You can only get a fortnightly supplement, not a lump sum and you, or your partner, must be of Age Pension age and qualify for the pension to take advantage of this scheme.
Still deciding your best option? Always get independent financial and legal advice before making decisions that affect your financial future.
About the author
- Helen Hawkes is a business and lifestyle journalist who has written for clients including CPA Australia, Westpac, Colonial First State, The Australian Financial Review, QSuper and the Australian Institute of Superannuation Trustees. She has bought and sold five houses and is currently planning a comfortable retirement.
