Unlock your retirement cash easily by downsizing: Experts demand reform
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For many Australian seniors, the family home that once buzzed with the energy of growing children now stands as a quiet reminder of days gone by.
It's often more significant than necessary, expensive to maintain, and can tie up a significant portion of wealth that could be used to fund a more comfortable retirement.
This is where downsizing could play a pivotal role, yet current policies need to take advantage of this opportunity.
Experts are now calling for reforms to make it easier for retirees to access the wealth in their homes.
Andrew Boal, chair of the retirement strategy group and a partner at Deloitte, highlighted a concerning trend: retirees are living more frugally than necessary due to a heavy reliance on property for their retirement income.
‘While most retirees own their own homes, 60 per cent retire with less than $250,000 in their super, and, as a result, they’re often living more frugally than they need to,’ Boal said.
The Actuaries Institute has found that more than 80 per cent of Australians aged 65 to 74 live in their own homes, with an estimated $1.3 trillion in housing equity.
However, many retirees do not consider their home a financial asset that could be actively managed to support their retirement.
By unlocking just 20 per cent of this equity, retirees could add an extra $260 billion to their retirement funds, significantly enhancing their quality of life for another 25 to 30 years.
To facilitate this, the institute suggested several measures to ensure retirees can free up housing capital without suffering reductions in superannuation or pension income.
One key proposal is to remove or refund stamp duty on property purchases for over-55s who are downsizing.
Another is to extend current measures that allow a couple aged 55 or over to add up to $600,000 to their superannuation after downsizing to include those taking out reverse mortgages.
These downsizer contributions are not counted towards non-concessional contribution caps but are considered in the assets test.
The institute advocates for these contributions to be exempt, or at least partly, from the assets test to encourage more seniors to downsize from homes that no longer meet their needs.
While these measures could cost the budget, the Actuaries Institute suggested a balanced approach: The family home's value above a certain threshold could be included in the age pension means test.
This idea, however, is politically sensitive and may face resistance, as seen with Labor's loss in the 2019 election, which was influenced by proposed changes to retiree income measures.
‘These policy reforms could unlock billions of dollars to improve retirement living standards, and at the same time help increase the supply of larger homes for young families, easing Australia’s housing supply issue,’ Baol explained.
Chant West research director Ian Fryer supported the institute's proposals, acknowledging that there are many disincentives for retirees to use the equity in their homes.
‘There are many disincentives for people to use the equity they have in their houses in retirement,’ Fryer said.
He believed that treating housing as a genuine fourth pillar in the retirement system, alongside the age pension, superannuation, and private savings, has merit and could help seniors live better retirements.
Independent economist Nicki Hutley, however, pointed out that financial issues like stamp duty are not the only barriers to downsizing.
‘If you move from a family home to a townhouse or apartment, often we find that because of zoning laws, it is hard to find a property that gives you enough spare change to make it worthwhile,’ she exclaimed.
‘We’ve got an ageing population and we know what the impact of that is going to be on the budget bottom line.’
‘I worry that people are sitting on assets to pass on to their kids, and I don’t know that we should be encouraging that,’
In the long term, Hutley suggested that including housing in the assets test system above a reasonable buffer would be beneficial.
However, she cautioned that there are no simple solutions to housing issues and emphasised that the search for quick fixes is often fruitless.
What are your thoughts on using your home's equity to fund your retirement? Have you considered downsizing, or have you already taken the plunge? Share your experiences and insights in the comments below.
It's often more significant than necessary, expensive to maintain, and can tie up a significant portion of wealth that could be used to fund a more comfortable retirement.
This is where downsizing could play a pivotal role, yet current policies need to take advantage of this opportunity.
Experts are now calling for reforms to make it easier for retirees to access the wealth in their homes.
Andrew Boal, chair of the retirement strategy group and a partner at Deloitte, highlighted a concerning trend: retirees are living more frugally than necessary due to a heavy reliance on property for their retirement income.
‘While most retirees own their own homes, 60 per cent retire with less than $250,000 in their super, and, as a result, they’re often living more frugally than they need to,’ Boal said.
Andrew Boal from Deloitte said retirees rely too much on property and live frugally due to low superannuation. Credit: Shutterstock
The Actuaries Institute has found that more than 80 per cent of Australians aged 65 to 74 live in their own homes, with an estimated $1.3 trillion in housing equity.
However, many retirees do not consider their home a financial asset that could be actively managed to support their retirement.
By unlocking just 20 per cent of this equity, retirees could add an extra $260 billion to their retirement funds, significantly enhancing their quality of life for another 25 to 30 years.
To facilitate this, the institute suggested several measures to ensure retirees can free up housing capital without suffering reductions in superannuation or pension income.
One key proposal is to remove or refund stamp duty on property purchases for over-55s who are downsizing.
Another is to extend current measures that allow a couple aged 55 or over to add up to $600,000 to their superannuation after downsizing to include those taking out reverse mortgages.
These downsizer contributions are not counted towards non-concessional contribution caps but are considered in the assets test.
The institute advocates for these contributions to be exempt, or at least partly, from the assets test to encourage more seniors to downsize from homes that no longer meet their needs.
While these measures could cost the budget, the Actuaries Institute suggested a balanced approach: The family home's value above a certain threshold could be included in the age pension means test.
This idea, however, is politically sensitive and may face resistance, as seen with Labor's loss in the 2019 election, which was influenced by proposed changes to retiree income measures.
‘These policy reforms could unlock billions of dollars to improve retirement living standards, and at the same time help increase the supply of larger homes for young families, easing Australia’s housing supply issue,’ Baol explained.
Chant West research director Ian Fryer supported the institute's proposals, acknowledging that there are many disincentives for retirees to use the equity in their homes.
‘There are many disincentives for people to use the equity they have in their houses in retirement,’ Fryer said.
He believed that treating housing as a genuine fourth pillar in the retirement system, alongside the age pension, superannuation, and private savings, has merit and could help seniors live better retirements.
Independent economist Nicki Hutley, however, pointed out that financial issues like stamp duty are not the only barriers to downsizing.
‘If you move from a family home to a townhouse or apartment, often we find that because of zoning laws, it is hard to find a property that gives you enough spare change to make it worthwhile,’ she exclaimed.
‘We’ve got an ageing population and we know what the impact of that is going to be on the budget bottom line.’
‘I worry that people are sitting on assets to pass on to their kids, and I don’t know that we should be encouraging that,’
In the long term, Hutley suggested that including housing in the assets test system above a reasonable buffer would be beneficial.
However, she cautioned that there are no simple solutions to housing issues and emphasised that the search for quick fixes is often fruitless.
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