Getting a grip on your finances is relatively simple when you're young: spend less than you earn; avoid consumer debt, and learn to budget and set goals.

However, it's a different story for seniors.
They’re navigating a jungle of superannuation, tax minimisation, estate planning, powers of attorney, age pension rules, and big lifestyle questions like downsizing and aged care.



At this age, you need a team. Your solicitor, accountant, financial adviser, and various specialists may all play a role. But most are experts in only one area, and they rarely see the whole picture.

The following email from a reader is typical:



This lawyer’s tip was way off track, but sadly, I'm getting more and more emails in this vein as professionals in one field try to comment on areas which they know little about.

It's a fact of life that most retirees won't be able to enjoy the lifestyle they want without tapping into the equity of their home. And there are only two practical ways to do that: move to a smaller property or borrow against the one that you have. Both choices have advantages and disadvantages.

Many people are tired of a big old home that requires ongoing maintenance. For them, downsizing is the obvious option. But this has costs such as sales commission, stamp duty (if applicable), and possible loss of pension because you're moving an exempt asset (your home) to assessable assets such as superannuation. Costs can easily run over $200,000.



So, for the many people who love where they are but still need to access the equity in their homes, a reverse mortgage lets them stay in their homes and avoid the costs and disruption of moving. It can be an excellent solution when used appropriately.

Reverse mortgages have traditionally been used to top up retirement income. The government’s own Home Equity Access Scheme is designed for this, enabling a fortnightly drawdown of funds. This has no effect on your pension and keeps interest costs low, as the loan size only increases gradually.



For example, if you began drawing a small reverse mortgage in your early 80s on a home worth around $2 million, the impact would probably be minimal, as the increase in value would more than compensate for the cost of the reverse mortgage.

However, more and more retirees are finishing work with an outstanding balance on their home loan or credit card, and a reverse mortgage can be used to refinance this debt without depleting retirement income.

Another common use is renovating the family home, thus enjoying another 20 years of lifestyle and improving the value of a capital gains tax–exempt asset. The risk here is that the debt increases over time, as no repayments of principal or interest are required.



The impact can be minimised by starting the loan as late in life as possible or by choosing to pay the interest on the loan, thus preventing it from compounding.
Reverse mortgages can be a very effective tool in your retirement strategy. Just make sure you take advice about their application to your specific situation from someone who is adequately equipped to advise you about them.



About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.