In this episode we look at the age group of those 55 and above. The issues that can affect this group and some ways to combat those problems whilst also looking at some strategies to use debt for your advantage.
Entering retirement, owning your own home and being completely debt free is for many people the great Australian dream. But with lifestyles changing and living expenses on the rise, it is not necessarily possibility for everyone, and many people enter this stage of life with a mortgage.
Some of the strategies to consider for those above 60 would be to get pro-active with their debt strategy in advance of retirement by understanding how you want your lending facilities to look for the rest of your life. This is important as your opportunities to restructure this become more limited as you get older and when retired.
If you are planning to carry out a home loan into retirement, it is important to know that it’s not necessarily an impossible thing to manage, but you need to plan for it as part of your household budget. You might be potentially learning to live off a lower income amount if you’re finishing up working full time and therefore the repayments need to be factored in because as a percentage they could be eating up more of your income and your lifestyle could be affected as a result.
Often the biggest asset that individuals have is the family home, and with property price increases over the last decade being so significant this effect has been compounded.
With such large amounts of our wealth tied up in non-income producing assets such as the family home, debt strategies will form a bigger part of retirement planning than ever before.
A family home is not income producing but provides a host of other benefits including peace of mind, a sense of financial security and a place to call home without the fear of getting told by your landlord that you need to move. Whilst they are great benefits, it doesn’t assist in funding your lifestyle. Short of renting out a room, charging board, or perhaps listing on Airbnb, the family home is not going to generate any income that’s going to help fund your lifestyle needs in retirement and options for accessing the equity in the home may be required to meet this.
Care needs to be taken because this is an asset that often has a deep emotional connection, so you want to make sure that you are not putting this at risk by overextending and not being able to meet repayments. But, if used correctly, you could be accessing just a part of the equity and the ongoing growth in the property to supplement your lifestyle whilst still being able to remain in a property that you’re comfortable in and feels like home.
If you haven’t had the foresight to put in place lending facilities leading up to retirement, you may need to consider solutions such as reverse mortgages or equity release facilities.
There is a variety of solutions and products to navigate and the devil is in the detail, so ensure you understand the terms and conditions which can be quite complicated. Always do your research, compare alternatives, read the terms and conditions and make sure you know what you’re getting yourself into. It can be a good idea to discuss these with a broker who has experience in this area. You need to be thinking long term with any decisions relating to your debt as there may be unintended future consequences in the event you want to move home, downsize, if you need to transition to aged care or pass away. It is critical to understand what your exit strategies look like in each of those circumstances.
When an appropriate debt strategy and product solution is combined to access the capital in your home it can make a significant positive impact on the quality of life retirees can enjoy through accessing part of the wealth that you’ve built up in your property over many decades.
Too often individuals who want to remain living in the family home through retirement are doing so on a very modest level of income, because they don’t have the liquid assets to fund this and bulk of their wealth is tied up in an illiquid and non-income producing asset (the family home).
Speaking to our client in this phase of life, and in particular parents worry about what we’re going to leave to the next generation. This is very selfless and a lovely thought, but I think if most of those parents asked their children the question of whether they wanted a bigger inheritance or they wanted to see their parents enjoy their retirement and using their wealth to fund a good quality of life… I think the overwhelming majority would opt for the latter.
The use equity release or reverse mortgage solutions can be quite a useful tool is for those individuals that don’t necessarily have a key focus as part of their estate plan to pass their wealth to beneficiaries. In these cases the modus operandi or priority is really funding their lifestyle and not intergenerational wealth transfer, so accessing the value in their family home may be more appealing.