Age pension increases announced by the Australian Government will soon be outstripped by increases in interest rates, and the current cost-of-living crisis is set to worsen. As a result, many older Australians are looking for ways to supplement their day to day living costs and sustain their regular lifestyle. Accessing the value of home equity is one option.
New research undertaken by retirement funding provider Household Capital, in conjunction with Your Life Choices, reveals that many older Australians feel retirement is not meeting their expectations, particularly with the financial impact of the increased cost of living.
The research, which included over 3,500 older Australians, revealed that 48 percent felt negatively about their retirement experience, with almost half of respondents saying that this next stage of life does not live up to expectations.
The study also found that 34 percent 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 stressors.
Dr Joshua Funder, CEO of Household Capital, says the increased cost of living means that many older Australians are giving up a comfortable lifestyle simply to afford the essentials. He notes there's a huge education gap about what measures can be taken to alleviate the burden created by the current economic climate on older Australians.
"We welcome the modest increases to the age pension announced by the federal Treasurer this week. However, 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," said Dr Funder.
"Over 75% of retirees are homeowners. What many Australians don't realise is that they can use the value or 'equity' built up in their home to both guarantee their retirement housing and to improve their retirement lifestyle, lessening their financial stress and making the most of their retirement," he said.
With the Future Fund and other major superannuation funds announcing negative returns, Australian retirees can no longer expect double digit growth from their modest nest eggs.
“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” said Funder. “Drawing heavily on superannuation accounts now to meet the rising cost of living will leave a lot less to rebound down the track.”
Household Capital say they have seen an increase in enquiries over recent months, as Australians look to access their home equity and offset increased costs with a Household Loan (a responsible, retirement-funding reverse mortgage). However, Dr Funder says there's still a long way to go in empowering Australians to utilise the wealth built up in their home to better their retirement living for themselves and their families.
"The role of the house in retirement is largely not understood. We want to champion homeowners to realise how wealthy they are and how the savings they already have, that they can be proud of, can provide them with the freedom and flexibility to enjoy a comfortable retirement.
“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.
"Whether it's setting up a regular income stream to top up income from a super fund or pension, establishing a contingency fund in case of unforeseen expenses, or paying off an existing mortgage to free up cashflow, home equity can be used to ensure that an existing income does not have to stretch to cover day to day expenses or that super accounts are not depleted in the short term," said Dr Funder.
The graph below demonstrates how the value of a home rises in line with the loan and interest accrued.
Please note: 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 is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434, Australian Credit Licence 391876.