Home equity: A generator of happy retirement

Sustained inflation is set to worsen the current cost-of-living crisis, outstripping modest increases to the age pension and any impact of the gas price cap.

The harsh reality is that Australia is at an inflection point, and older Australians are now looking for ways to supplement their day-to-day living costs and sustain their lifestyles.

There’s a huge education gap about what measures older Australians can take to alleviate the burden created by the economic climate, and when state and federal government balance sheets are stretched and in need of repair.

Equity in the family home becomes a valuable retirement asset

Over 75 per cent of Australian retirees are homeowners, equating to more than $1 trillion in untapped residential equity. These funds can provide adequate, certain, lifelong retirement funding at home, lessening their financial stress and making the most of their retirement.

While the gas price cap and modest increases to the age pension announced by the federal government are welcomed by retirees, neither the pension nor superannuation returns are keeping up with inflation, meaning retirees are going backwards and struggling to keep up with the cost of living.

And with the Future Fund and other major superannuation funds announcing negative returns, retirees can no longer expect double-digit growth from their modest nest eggs. All this at a time when a greater proportion of superannuation fund members are moving into the retirement phase.

Median household superannuation for retirees is still less than $200,000, and with a low-growth outlook, there is no way that will go the distance and fund an adequate retirement for senior Australians as they plan to live 25 years of active retirement.

In terms of longevity, Australia is now only second to Japan. In 1970, the median age at death for Australian men was 69.3 years, and 73.3 years for women. In 2022, the male median age at death has risen to 81.2 years for men and 83 years for women.

Drawing heavily on super accounts now to meet the rising cost of living will leave a lot less to rebound down the track, a problem known as “sequencing risk” by financial boffins.

Over 20 per cent of retirees are now retiring with a bank mortgage, which they must continue to pay from their retirement income. Downsizing options are limited, and most retirees want to stay at home if possible and in their community.

Australians are living longer, healthier lives than ever before

Rising interest rates have also sharply increased mortgage repayments for retirees just as much as other homeowners and significantly reduced retirement incomes available to spend on essentials.

In response to the cost-of-living crisis, there has been a surge in demand for both the federal Home Equity Access Scheme and commercial home equity retirement funding providers.

However, the role of the house in retirement is largely not understood. Given that retirees have more than $1 trillion in home equity, our national challenge is to help them access their wealth to improve their own retirement housing, funding, and care.

Retirees should feel empowered to access their pension, superannuation, and home equity throughout retirement to get the best out of their savings and have confidence in the long-term lifestyle they deserve.

Making sure all Australians understand the role of the family home throughout retirement, as the preferred form of housing and a major source of retirement funding, is the next step to meet the challenge of an ageing population in the context of high inflation.

Clearly, many older Australians feel retirement is not meeting expectations, particularly with the financial impost from the increased cost of living. A recent survey by Household Capital and Your Life Choices of more than 3500 older Australians found that 34 per cent were not at all confident they could avoid outliving their retirement savings, highlighting a pressing need for greater financial stability and regular income to help alleviate these stresses.

For many retirees, the solution to some of these problems may be in their own backyards. Home equity remains the largest store of family wealth.