Optimising retirement funding using your Home Wealth

Josh Funder, interviewed by Deb Knight on Nine Radio’s Money News program. Monday 21 October 2024

Read the interview below, or listen and watch the recording here.

Deb: Josh Funder is the CEO and managing director of Household capital and he joins me this evening on Money News.

Josh, welcome to the show.

Josh: Deb, thanks for having me.

Deb: So the goalposts, they’re always changing for how we need to stretch our money, particularly with the cost of living crunch hitting as hard as it is.

How different is retirement? Is that in the same kettle of fish?

Josh: Oh, Deb goalposts changing in retirement is on steroids because the big goalpost is that Australians live a long time and no generations in human history have lived as long as the baby boomers.

Australian baby boomers have goalposts that keep going over the horizon in terms of how long they’re going to live. And then, how they fund their retirement?

A couple today at 65 – 67 need to plan on one of them living more than 25 years going right through to 90.

That’s the big goalpost and at a national level; how does a country get the right housing mix, the right funding mix, and also have a vibrant ageing economy.

How do we help Australian retirees navigate that uncertainty, and also take control of their lives and access their wealth?

Deb: Because that’s the big question that everyone ponders, you know, ‘do I have enough to retire on comfortably?’

And ‘comfortably’ is a term that can apply very differently from one person to the other.

And you know, it’s a question that there really isn’t a definitive answer to.

Josh: ‘How long will I live?’ and ‘Do I have enough to live that long?’

Yes, big answers.

There are all sorts of stats around what an adequate retirement needs in terms of money every year as an income, a replacement rate to the income you had when you were working, or as a pot of money in Superannuation.

So a lot of people would say that an adequate retirement – a comfortable lifestyle – takes over $600,000 in Superannuation to fund a retirement for that length of time. 

And there are very few Australians that have that sort of money in the current generation, because our Boomers got 3% Super halfway through their working lives.

It’s also a lot worse for women because they’re going to live longer, and they’ve got less Super. They were underpaid and in and out of the workforce.

Let’s put ourselves in the shoes of an Australian woman who’s 67 and looking at a very long life – great health – so we should celebrate that.

Now, the big thing that we can try to pivot from, and provide some certainty about, is the fact that Australian retirees are the wealthiest retirees in the world at a median level.

Australians are the wealthiest retirees in the world.

So firstly, congratulations!

They’ve been savvy, they’ve worked hard, and they’ve got wealth. Part of that wealth is in their Super, but only part. Median Superannuation for retirees for couples is still around $200,000.

Pretty modest. And that doesn’t get you far down 25 years of retirement.

Deb: So, does the pension then come into the equation?

Josh: We’ve got a pension, and most retirees would like to think they’re not going to rely on the pension, but most retirees are. Eighty percent of retirees end up on the part or full pension. So, it’s a hugely important part of planning and its means tested, but that also means it’s more adequate for those who need it.

And long term, you’ll know the stats, the Australian pension is only going to consume 2.5 percent of GDP.

Deb: So, are more Australians retiring thinking that the pension will be the safety net for them? Is that sort of there in the background?

Josh: Currently most Australian retirees very much value the pension and at the start of retirement, there’s only 60% or so who are on the part or full pension. But as you get older and as your assets go away and diminish, more and more people end up on the part or full pension.

So, at retirement, most people think Super will be a part of their retirement planning, but it’s only going to be a small part as it’s only a small part of their assets.

They know the pension has to play a role, but they don’t know just how much of a role it’s going to play over 20 years. But what they really don’t know about, and what I think is really what we should make sure as a nation – we’ve got awareness of wealth for retirees and access to it – is that median wealth in the home, home equity at retirement for Australians, is over $900,000 in our capital cities.

So, let’s put ourselves in the shoes of a female retiree. She owns her own home. She’s got less than 200,000 in Super, she’s got the pension, and she’s going to live for 25 years.

Now. That works well because you’ve got housing in your home and you can now access part of the wealth in your home. You can more than double your Superannuation by accessing your home at 65.

Deb: Because that’s the question. A lot of us, a lot of Australians, are asset rich but income poor and unlocking that is the question that a lot of people are unsure about.

Josh: That’s right.

Historically around the world, and in Australia, the only way people did that was with an old school reverse mortgage, and there were some problems with that. It’s now regulated and has changed, but nobody’s aware of the changes.

It used to be that a bank would provide a reverse mortgage as a last resort. Now people access the wealth in the home as a long-term planning tool.

So, it’s a very different approach.

It’s needs based, it’s long-term, it’s strategic, it’s with real confidence, and it’s not a last resort.

Next thing people were worried about, rightly, that they might lose their home. The old contracts weren’t regulated and now Australia guarantees home occupancy for as long as you want. So, there’s no way a bank or a provider can evict you, can foreclose, or has recourse against the home.

It’s a hugely protected product and there’s been no material breach of that in over a decade. So, Australia now has the best regulated, most consumer friendly way that people can access their wealth, but most people don’t know about it.

The Australian government also leads the way in a policy approach. It’s said in the Retirement Income Review that Australians should think about their retirement with three main pillars; the Government Pension, compulsory savings like Superannuation, and private assets – home ownership.

Australia is the first country in the world to say, look, there are three major parts of wealth; the home, super and the pension. And it happens to be that Australians should be congratulated for being the wealthiest across all three.

But now the challenge is, how do we get people access to all three pillars of their retirement funding?

Deb: So overall, do we need more education so that those who are heading towards retirement are better prepared for the reality of what they’re facing?

Josh: Well Deb, whenever anybody says you need more education and you’ve just finished working life and you’re retired, people don’t want more education, but we do need a couple of things.

What I say is that if you’ve got your skills early in life, formed a family, partnered up, you’ve bought a house, you’ve kept a job, you’ve paid your Super and you’ve paid your mortgage – you have all the expertise you need. Because for 40 years, you’ve built wealth, you’ve paid your taxes for the pension, you’ve contributed to your super, you’ve paid your home down, you’ve built a family, you’ve built a community.

Now that is all you need in terms of skills and financial management. To draw on that wealth across all three parts of your wealth for the next 25 years of your life, we do need awareness, and we need to help people access their wealth responsibly.