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 Australian 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’re currently winding down from work or are already retired, you might be noticing a frustrating paradox. On paper, you are likely wealthier than you’ve ever been, sitting on a highly valuable piece of Australian real estate. Yet, in practice, your weekly budget has never felt tighter. You are asset rich but income poor, watching the rising cost of living quietly erode the retirement lifestyle you spent a lifetime building.

Geopolitical conflict has reignited inflation, which in turn has turned the trajectory of interest rates upward. For those carrying debt into retirement, the picture is even more bleak. When you add mortgage repayments, the rising cost of living for pensioners 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. If you are aged 60 or over and finding it difficult to make your savings stretch, 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 you spent the first 10, 20 or even 30 years of your working life without any compulsory super contributions at all. Because the system didn't peak until late in your career, many Australians have retired with low balances that fall drastically short of the Association of Superannuation Funds of Australia (ASFA) ‘comfortable’ retirement benchmark. You 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 – you used the lion’s share, or the entirety, of your superannuation lump sum to discharge your remaining mortgage. While you achieved the great Australian dream of owning your home outright, you were left little liquid cash in the bank to generate retirement income to fund your daily life.
• Scenario 2 – your super wasn't large enough to clear the debt, meaning you 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 standard of living, leaving you with little to no financial breathing room.

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.

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 – the cost of living for pensioners is presenting many with unpalatable choices. You are living in a beautiful family home worth $1 million, $1.5 million or more, yet you are forced to stress over heating costs, filling your petrol tank or the price of a tub of yoghurt at the supermarket.

You are wealthy on paper, but your daily reality is defined by financial scarcity. You are ‘asset-rich and cash-poor’, sitting on a valuable asset that you cannot eat, use to pay your 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. While there are numerous reasons for downsizing, they generally fall into three categories: financial, practical and lifestyle.

From a financial perspective, downsizing enables you to move to a less expensive home. It’s a simple calculation – you sell your 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, appropriate housing in your chosen area.

From a practical perspective, downsizing might provide 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 you move into a retirement ‘lifestyle village’, enjoy a treechange or seaschange, or move from outer to inner suburbs to make the most of your chosen city. Some people choose to downsize into lock and leave apartments, and then alternate between living there and living life as a ‘grey nomad’ exploring our vast nation.

However, downsizing is not without its challenges.

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

• Your 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 preferred area may see you need to move further afield than you desire
• Location – a new neighbourhood may mean finding new service providers and see you further removed from family, friends and your 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.

But…what if you didn’t have to downsize or sell the home you love just to unlock that wealth? This is where the modern 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 you to remain in the home you love and enjoy a comfortable retirement lifestyle.

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

How does a reverse mortgage work?

Think of a reverse mortgage as a strategic restructuring of your wealth. Over your working life, you poured your hard-earned income into your mortgage, effectively saving money inside the bricks and mortar of your property. Now that you are retired, it’s time for that asset to start supporting you.

If you’re an Australian homeowner aged 60+, a reverse mortgage is a loan facility that enables you to access the equity in your home. It doesn't require repayment until you vacate the property.

The amount you can borrow is a function of your age and the value of your home. The older you are, the more you can borrow. The Loan to Value ratio – otherwise known as the LVR – 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?

A reverse mortgage in Australia has been designed to help you Live Well At HomeTM. In fact, that is Household Capital’s mission. We want you to be able to say ‘yes’ to more in retirement, by unlocking the money in your home to fund the things that matter most to you.

There are a number of ways you can use the money in your home to improve your retirement funding and beat the cost of living.

Income

You can draw a regular income stream from your home equity. Paid fortnightly or monthly, consider how a supplement to your pension income, whether from your super and/or the government, could help you beat the cost of living squeeze.

A large number of our customers use their regular income to cover home running costs – utilities, rates, repairs, insurance, body corporate fees. Imagine having those lumpy payments covered. It can take the sting out of running your car, easily covering your regular servicing, registration, insurance and roadside assistance, while giving you a buffer against skyrocketing prices at the fuel pump.

Others use their additional income to say yes to more, to enjoy the retirement lifestyle they’ve worked so hard to enjoy. Dining out, weekends away with family and friends or simply enjoying life’s little pleasures in your own home.

It’s important to note that you only pay interest on the money drawn each fortnight or month, not the total approved loan amount.

Lump sum payments

You can choose to receive the money from your home as a lump sum – or alongside a regular income payment. Our customers use lump sum payments to meet a number of needs:

• To repay a home loan or other debts – a reverse mortgage does not require regular repayments so using the lump sum to discharge debt can free up your retirement income to meet other needs
• To buy a new car to maintain your safety and independence
• To renovate your home and garden to make it safe and comfortable for your retirement years
• 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.

You’ve worked hard over the years and deserve to enjoy a quality retirement, one where you spend time doing the things you enjoy with the people you love. A retirement that’s characterised by financial security, choice and peace of mind.

By safely drawing down on a portion of your home’s equity, you can instantly solve the retirement savings conundrum:

• You keep your home – you maintain 100% homeownership, stay in your familiar community and continue to benefit from any future property growth
• You eliminate the cash squeeze – draw a regular income stream or lump sum payment to comfortably outpace the rising cost of living
• You bypass the friction costs – there is no stamp duty, no real estate agent commissions and no stress from packing boxes.

A reverse mortgage allows you to transform your fixed, illiquid housing wealth into spendable cash, giving you the financial freedom to enjoy your retirement years without sacrificing your comfort, your memories or your independence. A reverse mortgage calculator can easily demonstrate the value of home equity available to you to draw as income or capital, or a mix of the two.

Why not see how you could beat the cost of living and join the thousands of Household Capital customers who have chosen to Live Well At HomeTM in retirement.

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.