Funding our retirement is a topic that is close to a lot of our hearts.
Will our super be enough?
Will we have made good investment decisions that will allow us to enjoy our years in retirement to the fullest?
What else can we do to really capitalise on what we have?
One option is to use the equity you have built in your home. Equity is the value of the property minus the debt. It is built by the property value going up and debt going down. Thankfully it’s a pretty naturally occurring phenomenon in Australia with increasing price values and the fact that most of us pay principal and interest on our mortgage.
Ways that you can use this equity are varied.
If you want to do something now, you could explore leveraging the equity to buy an investment property. Your mortgage broker can help you look at this option.
Other options for the future include:
1. Downsizing from your current home to a smaller (and cheaper) home then using the leftover funds to either pay off your remaining loan or investing. A smaller home has many benefits including less maintenance, less cleaning and less expense for heating and cooling. It’s also good to find a home with your future in mind – that may include less stairs, smaller yard, closer to family, friends, shops and medical facilities.
2. If you decide to downsize you may be able to put the proceeds from your sale towards your superannuation using the Australian Government’s Downsizer Contribution Scheme. This scheme lets you contribute up to $300,000 from the sale of your home into your super. From 1 July 2022, the eligible age for this scheme has dropped from 65 to 60.
3. If you don’t want to downsize there is another option you could look at, but we advise that you seek financial advice before taking this action. The government’s Home Equity Access Scheme gives eligible participants access to a voluntary fortnightly loan, secured against their property. To be eligible for this scheme you will need to qualify for the age pension. You’ll also need to own property that you can use as security. This is a loan that will charge interest and will need to be repaid – so there are things to consider.
There are a few considerations to take into account when planning to use equity to help with your retirement:
* Will it impact your eligibility for the age pension?
* How will it affect your capacity to pay for future expenses, maintain your home and afford aged care if and when needed?
* How will it impact your children’s inheritance?
Start planning now. Speak to your financial planner. Speak to your broker. Have a family meeting. Look at different options and put plans in place.
