How to avoid crystallising a loss with your super

Australians approaching retirement should be very wary of government programs that encourage them to withdraw their super when the market has bottomed out when other options are available, a chief executive has warned.  

Household Capital chief executive Josh Funder has conceded that many retirees are now facing reduced retirement incomes because term deposit interest incomes are at an all-time low, investments are down, dividends are low and rental incomes are challenged by COVID-19.

“Early access to super hasn’t solved the big problem facing retirees, which is the inadequacy of superannuation to fund long-term retirement,” he said.

“We need to learn from the GFC, when many retirees crystallised losses by withdrawing super when investment balances were down.”

He pointed out the benefits of an alternative option to provide much-needed cash flow to older Australians at this time, acknowledging that retirees still need to be able to maintain their retirement funding “to get through the pandemic”.  

“Home equity remains, for many retirees, the largest and most stable pool of savings from which they can fund their retirement,” the CEO said.  

A home income product, such as the one on offer from Household Capital, can see customers drawing down on their home equity as a regular income stream, to improve retirement funding alongside the government age pension and any superannuation drawdown.

According to Mr Funder, this type of reverse mortgage is tax-free and won’t impact on an individual’s pension.

“As a rule of thumb, if you take three zeros off the value of your home, you can draw that amount monthly with confidence,” he explained.

“In other words, for many people living in a $1 million home, an extra $1,000 per month retirement income is the right amount for them.”

When added together, retired Australians have more than $1 trillion saved in home equity, Mr Funder said.

He flagged that for most retirees, the savings they have made in home equity are four to five times larger than their superannuation savings – in part due to Baby Boomers only receiving 3 per cent compulsory contributions part way through their working careers.

“Accessing home equity allows retirees to preserve their superannuation, let it rebound over time, and maintain their retirement funding,” Mr Funder concluded.

Original article on Nestegg.com.au