Getting your house in order for a better retirement
Will you be asset rich, but income poor during retirement’? Here are some tactics to consider
Christopher Wilsmore
The Age Pension remains a vital source of income for many older Australians in retirement—ensuring we can meet a minimum standard of living in our retirement years.
Though, depending on your retirement vision and funding requirements, you may find that the Age Pension may not be enough to have the retirement lifestyle that you want.
If you think this may be the case, then it’s important to consider planning ahead early to ensure that you have additional and sufficient sources of income to draw from in retirement.
Unfortunately, for one reason or another, some of us may find ourselves entering or ending up in retirement ‘asset-rich, but income-poor’.
This may mean most of your wealth is tied up in their home (an asset that doesn’t typically generate income)—and the other assets that you do have (eg retirement savings) are unable to generate the income required to fund your desired retirement lifestyle.
Importantly, if you do find yourself in this situation, the Government’s Retirement Income Review highlighted some options to consider in terms of boosting your retirement income.
Pension Loans Scheme
The Pension Loans Scheme is the Government’s version of a reverse mortgage, offering you the opportunity, if eligible, to receive an income stream to supplement your existing retirement income.
In brief, it’s a voluntary non-taxable loan secured against your property. Under the Scheme, if you or your partner are age or service pension age and you receive a qualifying pension (eg Age Pension), you can nominate to receive (for a designated time period) a fortnightly loan payment of up to 150% of the maximum rate of your pension, minus any pension payment you receive.
Please note: In the 2021-22 Federal Budget, it was announced that participants in the Scheme would be allowed to access up to two lump-sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of the Age Pension. If legislated, this is due to commence from 1 July 2022.
Downsizer Contribution
In retirement, you may wish to downsize your home—and in the process, boost your existing retirement income sources by tax-effectively investing a portion of the sale proceeds.
Since 1 July 2018, those aged 65 or over, subject to meeting other eligibility criteria, have been able to use the proceeds from the sale of their home to make a non-tax-deductible downsizer contribution of up to $300,000 each (up to $600,000 per couple) into super.
While we all have our own personal circumstances, between 1 July 2018 and 17 January 2020*, over 9,000 people made downsizer contributions—with an average contribution of $230,000.
Please note: In the 2021-22 Federal Budget, it was announced that the eligibility age would be lowered from 65 to 60 years of age. If legislated, this is due to commence from 1 July 2022.
Next steps
When it comes to your vision of retirement, it’s vital to understand and build the financial (income-related) resources required to make it a reality—early planning can help here.
However, if you do find yourself entering or ending up in retirement ‘asset-rich, but income-poor’, there are options available to you that may be worth considering.
- Undertake a review to assess if you are on track in terms of the financial (income-related) resources required to fund your desired retirement lifestyle. To do this complete this simple retirement planner
- For retirees, it may be worthwhile assessing the appropriateness of using a portion of the equity in your home to give your existing retirement income sources a boost. Go here to assess if its right for you
Written and accurate as at: 3 November 2021
*Australian Government, Treasury. (2020). Retirement Income Review: Final report, July 2020.