A smart way to make retirement money last
We may be living longer but our savings are getting smaller, so how can you get the most of your retirement dollar?
Ever thought about combining your super and home equity release for an income? It could be one way to see you through a comfortable retirement.
Equity release offerings, such as reverse mortgages, are a missed opportunity for both retirees and financial service providers as Australians need all the help they can get when it comes to funding a sustainable retirement, says a recent report.
Related link: How to get double digit returns in super today!
The annual Reverse Mortgage Report by financial advisory firm Deloitte estimates that more than $500 billion of home equity is held by Aussies aged over 65 and is available to be leveraged.
James Hickey, a financial services partner at Deloitte and the report’s author, says banks, insurers and superannuation funds are best placed to better embrace, understand and educate Australians on the option of equity release products.
“These are the groups seeking to help their customers aged 65 and over to navigate their retirement with the dual challenges of longevity and income sustainability. Bringing what is often their most substantial asset – their home – into such discussions must be in the best interests of everyone,” he explains.
Earlier in the year, Deloitte’s Adequacy in Superannuation research found that as of June 2013, an Aussie’s average super account balance was at best a third of what will be required to deliver that person even a modest income in retirement – which is $450 a week according to the Association of Superannuation Funds of Australia.
“Given that for many retirees the equity in their home continues to represent two thirds or more of their entire wealth, well in excess of their superannuation balance, a reverse mortgage is a very useful consideration for cash-poor asset-rich retirees who want either extra cash flow or to fund an aged care accommodation bond,” Mr Hickey says.
However, like other financial products, there are risks involved in reverse mortgages. In an article published earlier this year on The Conversation, Rachel Ong, an associate professor at Curtin University, and Gavin Wood, a professor of housing at RMIT University, said that while tapping into home equity can bring immense financial benefits to homeowners, it can also expose people to uncomfortable levels of risk. This is especially the case for people in their 50s and 60s who are reaching or have reached the end of their working career.
Despite this, the scale of equity borrowing has been significant in Australia, with one in five Aussie homeowners having dipped into their housing equity every year over the last decade. Mr Hickey says that for those over-60s looking at equity release options, you need to be aware that these products require support and education. The same focus as that of superannuation and downsizing a property.