Boost your retirement plans
18 July 2016
With an average retirement age of 65 and life expectancy in the low 80s in Australia, the majority of Australians are faced with the need to fund more than 15 years of retirement solely with superannuation and savings.
An ageing population
After decades of working and saving, retirement can be seen as the ‘golden years’ – the time where , on a cold winter’s morning, you don’t have to get out of bed at 7am if you don’t want to. But with 65 being the average retirement age for Australians and average life expectancy in the low 80s, the majority of Australians are faced with the need to fund more than 15 years of retirement solely with superannuation and savings.
While everyone’s lifestyle requirements will differ, according to Super Guru, a couple who owns their own home will require $59,922 per year after tax to live a ‘comfortable lifestyle’, while singles need $42,893. Across 15 years this works out to $898,830 for a couple and $643,395 for a single.
A comfortable lifestyle is described as one where you are able to afford one annual holiday each year within Australia, eating out regularly, owning a car in reasonable condition, having private health insurance and taking part in a range of leisure activities.
However, what if you wanted to make upgrades to your home, go on an overseas holiday, or provide financial assistance to your children? Or what if unexpected expenses occur, such as medical operations. How would you fund these costs? The wealth of many retirees is locked up in large assets, such as the family home, and most would be reluctant to sell-up entirely to fund lifestyle needs.
Reverse mortgages are beginning to emerge as an important part of retirement planning – a way to boost the living standards of retirees and relieve financial pressures. Reverse mortgages allow seniors to access a portion of equity tied up in their home, and with 80% of Australians aged over 75 owning their own home, it’s an option many can take advantage of. Funds can be taken as an ad-hoc lump sum, a regular income stream, as a line of credit, or a combination of these options. Borrowers can choose to make repayments or defer re-paying the loan until the house is sold or the last co-borrower moves out or dies.
Eligibility and loan amounts depend on how old you are. Most reverse mortgages are offered to those aged over 65, with a maximum borrowing amount of 15-20% of the value of the home. The older you are, the more you can borrow. However, HomeStart’s Seniors Equity Loan offers reverse mortgages to those aged over 60, and is the most competitive in the market.
Since 2012, reverse mortgages have been subject to the National Consumer Credit Protection (NCCP) Act, which is overseen by the Australian Securities and Investment Commission (ASIC). The NCCP Act provides tailored consumer protections for reverse mortgages including the ‘no negative equity guarantee’ providing assurance to retirees that they will not end up owing the lender more than their home is worth.
With a growing ageing population in Australia, reverse mortgages could offer retirees asolution for a more sustainable retirement plan, and opens the door to brighter ‘golden years’.