How to Beat the Rising Cost of Living in Retirement

For decades, the great Australian dream was simple: work hard, pay off the mortgage and enjoy a comfortable retirement. But as any of your clients over the age of sixty will tell you, the script has changed. Today, walking down the supermarket aisle, opening an electricity bill or filling the car feels less like life admin and more like a financial ambush.

If you have a client who is currently winding down from work or is already retired, they will be noticing a frustrating paradox. On paper, they are likely wealthier than they have ever been, sitting on a highly valuable piece of Australian real estate. Yet, in practice, their weekly budget has never felt tighter. Many of your older clients are asset rich but income poor, watching the rising cost of living quietly erode the retirement lifestyle they spent a lifetime building.

Geopolitical conflict has reignited inflation, which in turn has turned the trajectory of interest rates upward. For those clients carrying debt into retirement, the picture is even more bleak. When you add mortgage repayments to the mix, the rising cost of living for older Australians is really biting.

To understand why so many Australian retirees are feeling the financial squeeze today, we have to look past the headlines and examine the structural reality of our retirement system. It’s important to note that for those clients aged 60 who are finding it difficult to stretch their savings, it is not a personal financial failure. It is the result of a perfect economic storm that has left an entire generation underfunded through no fault of their own.

The reality of modern retirement in Australia comes down to a few hard truths.

1. The ‘late to the party’ super problem

While younger generations will benefit from a mature, fully funded superannuation system, today’s retirees were caught in the transition phase. The Superannuation Guarantee (SG) was introduced in 1992 and started at a meager 3%.

For anyone currently in their 60s or 70s, this means they spent the first 10 or 20 years of their working life without any compulsory super contributions at all. Because the system didn't peak until late in their career, many of your clients will have retired with low balances that fall drastically short of the Association of Superannuation Funds of Australia (ASFA) ‘comfortable’ retirement benchmark. They simply ran out of time to build a substantial nest egg.

Australian superannuation account balances have reached a record high, with account holders aged 65-69 now averaging $420,934 in retirement savings (source: ASFA). However, for those who retired a few years ago, a balance less than $200k was common, especially for women.

Given that this generation of Australian retirees will enjoy much greater longevity than their forbears, it’s not a huge sum of money to sustain 25-30 years of retirement life.

2. The great cash drain: paying off the home loan

Faced with a modest super balance upon retirement, many over-60s were forced to make a difficult strategic choice, resulting in two equally stressful scenarios:

• Scenario 1 – your client used the lion’s share, or the entirety, of their superannuation lump sum to discharge their remaining home loan. While they achieved the great Australian dream of owning their home outright, they were left little liquid cash in the bank to generate retirement income to fund their daily life.
• Scenario 2 – your client’s super wasn't large enough to clear the debt, meaning they entered retirement saddled with monthly mortgage repayments, trying to service a bank loan on a heavily reduced retirement income.

Both scenarios create an immediate drag on your clients’ standard of living, leaving them with little to no financial breathing room. While this is not a new phenomenon, the cost of living squeeze is making the challenges increasingly apparent.

Those clients soon to retire may have a greater super balance, but many are carrying larger mortgage debt; buying a home later in life, extensive renovations that extended their original loan, late-in-life divorce that upended well laid plans.

3. The Age Pension trap

For the majority of retirees who find their super exhausted or non-existent, the Age Pension becomes the primary source of income. While the pension is a vital safety net, it is structurally designed to fund a basic lifestyle. It was never intended to cover the extras that make retirement enjoyable…things like travel, dining out, buying a new car or seeing that latest movie. It certainly won’t allow clients to repay debt.

The Age Pension cannot keep pace with the level of inflation we've witnessed in recent years. When the costs of home insurance, council rates, electricity, and everyday groceries skyrocket, a fixed pension income simply cannot absorb the shock.

The rising cost of living is hard for everyone, presenting many with unpalatable choices. Your client may be living in a beautiful family home worth $1 million, $1.5 million or more, yet they are forced to stress over heating costs, filling their petrol tank or the price of a tub of yoghurt at the supermarket.

Your older clients may be wealthy on paper, but their daily reality is often defined by financial scarcity. While they are asset-rich, they sit on a valuable asset that they cannot eat, use to pay their bills or truly enjoy.

Many retirees believe their only escape from this financial squeeze is to pack up, sell the family home, and downsize. While that works well for some, moving is expensive, emotionally exhausting and often tears you away from the community, neighbours and memories you love. And as a broker, you are probably well aware of the scarcity of suitable (and affordable) housing stock in the areas retirees want to live.

While there are numerous reasons for downsizing, they generally fall into three categories: financial, practical and lifestyle.

From a financial perspective, downsizing enables your client to move to a less expensive home. It’s a simple calculation – they sell the family home, buy something cheaper and use the change to fund retirement. The effectiveness of this strategy will vary and is largely dependent on the availability of cheaper, suitable housing in their chosen area.

From a practical perspective, downsizing might provide clients with better accessibility and easier maintenance. It might be a new home without stairs, with a more manageable garden or one that doesn't need modification to make it safe and comfortable for retirement.

From a lifestyle perspective, downsizing might see a client move into a retirement ‘lifestyle village’, enjoy a treechange or seaschange, or move from outer to inner suburbs to make the most of their chosen city.

However, downsizing is not without its challenges.

Before deciding to downsize, clients need to consider the following:

• The emotional connection – leaving a family home can be hard; after all it’s where many memories have been created and milestones celebrated
• Availability – lack of suitable and affordable housing in your client’s preferred area may see them need to move further afield than desired
• Location – a new neighbourhood may mean finding new service providers and see your client removed from family, friends and community
• Less space – a smaller home means making hard decisions about letting go of precious furniture and other objects, many of which also have an emotional connection
• Accommodation – less space for guests, which can be particularly challenging for larger families.

What if there was a viable alternative to downsizing? This is where a reverse mortgage fits into the puzzle.

For decades, Australian retirees believed they only had two choices: live in financial hardship while holding onto the family home, or sell up and endure the emotional and financial costs of downsizing. It felt like an impossible compromise.

But there is now a third option – one that allows your client to remain in their home and enjoy a comfortable retirement lifestyle.

Instead of treating their home as a frozen asset that can only be unlocked by selling it, your clients over 60 can use a reverse mortgage to access the wealth trapped within their walls, all while remaining exactly where they want to be – home.

How does a reverse mortgage work?

You can describe a reverse mortgage as a strategic restructuring of your client’s wealth. Over their working life, your clients poured their hard-earned income into their mortgage, effectively saving money inside the bricks and mortar of their property. Once retired, that asset can start supporting them.

A reverse mortgage is a loan facility that enables Australian homeowners aged 60+ to access the equity in their home. It doesn't require repayment until the client vacates the property.

The amount each client can borrow is a function of their age and home value. The older they are, the more they can borrow. The Loan to Value ratio starts at 20% at age 60 and increases by 1% for each year over 60.

How can a reverse mortgage help beat the cost of living?

There are a number of ways your clients can use the money from a reverse mortgage to improve their retirement funding and beat the cost of living.

Refinance

For those clients still paying a home loan, a reverse mortgage can be used to pay out the mortgage (or other debt). Because regular repayments aren’t required, your client will free up their cash flow to meet other needs. More than one third of Household Capital reverse mortgages are used to pay out a traditional bank mortgage.

Income

Clients can draw a regular income stream from their home equity. Paid fortnightly or monthly, this income stream can supplement any pension income received from super or government payments.

This regular income is often used to cover home running costs – utilities, rates, repairs, insurance, body corporate fees. It’s important to note that clients only pay interest on the money drawn each fortnight or month, not the total approved loan amount.

Lump sum payments

Clients can choose to receive the money from their home as a lump sum or alongside a regular income payment. Brokers’ customers have used lump sum payments to meet a number of needs:

• To buy a new car to maintain safety and independence
• To renovate the home and garden to make it safe and comfortable for retirement
• To cover medical and dental expenses, one of the most inflation-affected sectors
• To enjoy the peace of mind that comes from having some money set aside for ‘a rainy day’, to know that one big bill won’t mean weeks of frugality to cover it.

Your clients have worked hard over the years and deserve to enjoy a quality retirement, one that’s characterised by financial security, choice and peace of mind.

By working with older clients to safely draw down a portion of their home’s equity, you can instantly solve their retirement savings conundrum:

• Your client keeps their home – they maintain 100% homeownership, stay in their familiar community and continue to benefit from any future property growth
• Your client eliminates the cash squeeze –by drawing a regular income stream or lump sum payment, they can comfortably outpace the rising cost of living
• Your client bypasses the friction costs – there is no stamp duty, no real estate agent commissions or removalist fees, and no stress from packing boxes.

A reverse mortgage allows clients to transform fixed, illiquid housing wealth into spendable cash, providing financial freedom to enjoy their retirement years without sacrificing comfort, memories or independence.

Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.