How higher house prices help retirees’ income
Surging home values are giving senior Australians extra power to increase their retirement income.
Whether through the Federal Government’s Pension Loans Scheme, reverse mortgages or equity release products, property price rises can help deliver much-needed cash to seniors at a time deposit account interest rates are almost zero.
Smooth Retirement CEO Scott Phillips says before making any decision about unlocking home equity, retirees should understand their objectives. “Get access to good information,” he says.
“For most Australians, most of their wealth is their equity in their home and most will need to use some of it to fund some part of their retirement.”
So what are the best tips?
PENSION LOANS SCHEME
This government scheme allows people aged over 60 to boost their age pension rate by 50 per cent through a loan that compounds fortnightly at 4.5 per cent.
Pension Boost CEO Paul Rogan says the government should better educate seniors about this scheme, and its interest rate should be lowered.
“With more than 1.8 million age pensioners owning their own homes, the potential to top up their income without affecting their age pension eligibility is significant,” he says.
The Pension Loans scheme is relatively inflexible because it does not allow retirees to borrow a lump sum to pay for large expenses such as renovations or serve as a cash reserve.
A reverse mortgage enables people aged over 60 to borrow against the equity in their home without making repayments. Interest on this loan, currently around 5 per cent, instead compounds and is repaid when the home is eventually sold.
Phillips says reverse mortgages are being accepted as the third platform of retirement, behind superannuation and the age pension.