08 Jan, 2020
Baby Boomer home owners in some of the nation’s plushest postcodes could release income from their properties equivalent to three to five times their existing superannuation, according to a new analysis.
Actuarial analysis of super savings and median property values in blue-chip suburbs reveals average Boomers aged over 60 are sitting on fortunes that could be used for their super income, or transferring wealth to children and grandchildren.
In Sydney’s exclusive harbourside Vaucluse the median property value is $4.7 million and average super balance of over 60s is about $200,000.
More than 25 percent of retirees aged over 60 in the suburb could draw down about $1.4 million of the value in their house – in addition to their superannuation – through a reverse mortgage product.
In Melbourne’s bayside Brighton, 12km south-east of the CBD, the median property is worth about $2.4 million.
The average superannuation balance of an over 60 is just over $282,000 but more than 25 percent of property owners aged 60 could draw down $722,000 in addition to their superannuation.
The analysis was compiled by Household Capital, a specialist in providing long-term access to home equity, based an actuarial analysis of superannuation funds, CoreLogic property values and government data cross-referenced with data from the Association of Superannuation Funds, the nation’s peak super body.
“There is a huge unmet need for retirement funding,” said Josh Funder, Household Capital's chief executive and founder, Rhodes scholar, venture capitalist and former business consultant, including for Boston Consulting Group.
Mr Funder said the company is based on his work on longevity and ageing as the chairman of think tank Per Capita.
“Most Australians can double their available funding at retirement through reverse mortgages.”
He added the retirement saving estimates are conservative.
A reverse mortgage borrower can take funds from the equity in their home as a lump sum, regular income stream, cash reserve, or a combination of all three.
The mortgage, interest and fees do not need to be repaid until the property is sold.
Boomers in Melbourne and Sydney are potentially sitting on giant nest eggs because the homes they bought 40 years ago have compounded in value to be among the world's most expensive residential property.
But the super guarantee was not introduced until about halfway through their working lives – and at a much lower rate – resulting in their savings being much less than younger generations.
An estimated 4.5 million retirees have equity in their homes that is on average about four to five times their super savings, which for male Baby Boomers is about $150,000 and for females about $80,000.
Nick Sherry, a former superannuation minister and chairman of Household Capital, said releasing home equity needs to be encouraged to top up modest retirement savings.
Rules for providing the products had been tightened by regulators to prevent problems, such as high fees, compounding debt and the effect on pension eligibility.
Mr Funder said: “It now has the strongest consumer protection of any financial product in Australia.”
Westpac Group, Macquarie Bank and Commonwealth Bank of Australia are among major lenders that pulled out of reverse mortgages.
Mr Funder said banks were “not good” at providing reverse mortgages, which they sold as a product, rather than ensuring they met their customers' long-term retirement needs.
Reverse mortgages allow retirees to draw 15 per cent of household equity at 60 and increase withdrawals by 1 per cent a year for the next 20, or a cap of 35 percent.