Money
Don't think you'll have enough money to retire? Here are your options
Worried your super won’t stretch far enough? Don’t panic, Nicole Pedersen-McKinnon suggests some smart ways to top up before and after retirement.
By Nicole Pedersen-McKinnon
It’s very possible that the clock is ticking down quickly until you retire, but your super balance is not going up nearly as fast.
For most people, it’s a race to the retirement finish line that might not turn out to be a perfect result.
So it’s important to know that – even if you fall short of the fund you were hoping for – there are lots of ways to boost it after you retire.
Let’s start with a quick whiz around the tips and tricks to shelter as much as possible in super at the last minute, then move to your options after you’ve retired.
Read this too: It takes $74,000 a year plus some priceless prep before you retire
The last-minute tips and tricks
In your final sprint to the most spectacular super pot possible, there are opportunities that help. This is particularly good news for people who may not have had consistent earnings through their life, but now make a little more.
What you can pay in extra before tax
While the annual amount you can pay in before tax is capped at $30,000 (2025-26 tax year), you might be eligible to mop up a further four years’ worth of unused “concessional contributions”.
Note these include any contributions your employer has paid in on your behalf and any previous salary sacrifices or deductible contributions that you have made.
But the total you can ‘carry forward’ going back five years including this tax year is up to $142,500. You can see what’s left of this by logging in to your myGov and accessing the linked ATO service. (Go to the super menu, “information” and then “carry-forward concessional contributions”).
You will only be allowed to use up the excess if you had less than $500,000 in your fund as at June 30 the previous financial year.
What you can pay in extra after tax
Then, there are the contributions that you can make after tax.
You can potentially contribute another $120,000 in the year. And you can use up two extra years of allowances here too, to bring your total to $360,000.
Both mechanisms are fabulous if you have investments that you will or could sell before retirement, with concessional contributions potentially – powerfully – cutting your tax bill too (from your marginal rate to just the 15 percent super tax).
Note that once you stop working, your options to get extra money into super are more limited (you need to satisfy a work test to make concessional and non-concessional contributions).
However, there is one big one…
The super downsizer opportunity
Either pre- or post-retirement, if you have been a homeowner for 10 years or more, the downsizer super contribution means you can shelter $300,000 from its sale into the tax advantage super system. Just like that.
If you are a couple owner, you can each contribute, so that’s $600,000.
And if you are still eligible to make non-concessional contributions, you could add $360,000 on top – each.
It’s a big consideration if you have a big home that you can no longer handle or have the desire to stay in… or both.
But there’s a key consideration with this one: the family home is exempt from the assets test for age pension eligibility; super is not.
Therefore model carefully what you may be giving up in terms of government income support before taking this step.
Besides, you may want to keep your home.
Your options to keep your home AND get cash
There are a raft of products that allow asset-rich but cash-poor Aussies to extract the equity in their homes… and repay it on its sale or after they die.
These fall into 3 main types:
1. Centrelink’s home equity access scheme
The home equity access scheme is essentially a government loan for eligible older Australians who own their own home outright. But, when we say older, you need to be pension age… 67.
You also need to either receive or be eligible for a qualifying pension like the age pension.
The beauty of this scheme lies in its affordability. The current interest rate is 3.95%. At the time of writing, that’s roughly equal to inflation, making it effectively free money.
However, don't expect to get your hands on a massive lump sum. Your combined loan payments and pension, if you get one, cannot exceed 1.5 times the maximum fortnightly pension rate. This means you're looking at fortnightly payments rather than a big cash injection.
You have been able to get an advance payment since July 2022, but it's still relatively modest.
The borrowing capacity depends on your age and property value, with the calculation being not just small but specific.
Note that there is negative equity protection too – your debt can't grow beyond your property's value.
2. Commercial home reversion schemes
Now we're talking about a different beast altogether here. When you sign up to a home reversion scheme, you straight-up sell a portion of your home to a financial institution. It's not a loan – it's an actual sale of a percentage of your property.
The main drawcard is certainty.
If you sell 20% of your property, you will always owe 20% of your property's worth. This is unlike loans where interest compounds and grows (like the government home equity access scheme, above, and a reverse mortgage, below) – your obligation stays fixed.
Age requirements are typically less strict than the government scheme, however home reversion products might still not be on offer until 65.
Just bear in mind that you are selling a part of your home – with a reverse mortgage or the home equity access scheme, you don't. All ownership stays with you.
Plus, these schemes fall outside national consumer credit protection legislation because they're sales, not loans. This means less regulation and more reliance on contract terms.
There's also the timing consideration. You immediately owe the designated amount, whereas with other products, it might take years to accumulate the same debt level.
3. Reverse mortgage schemes
Reverse mortgages are the most flexible but potentially most expensive option.
Like the home equity access scheme, these are loans that roll up and require no repayments until the end.
They are typically available younger with some products even accessible from age 55, which means the earliest access to your home equity of all three options.
Another advantage is the potential to borrow larger amounts and more flexible access to funds.
Which might come in handy: 14 truly useful ways to use your home equity
However, this flexibility comes at a cost. Commercial reverse mortgages carry higher interest rates than the government scheme's bargain 3.95%.
And these high interest rates and the fact that there are generally no periodic repayments (although with some lenders you can elect to make them), mean a potentially fast-growing liability that can significantly eat into more of your property's value.
The good news is that like the government scheme, reverse mortgages come with negative equity protection – laws introduced more than a decade ago mean that your debt with a commercial reverse mortgage cannot grow to more than your property is worth.
But the best choice of home equity extraction scheme may well come down to your crystal ball skills regarding property prices. If you expect rampant real estate prices, a reverse mortgage could be more 'affordable'… in that your equity could stay high regardless of the rolled-up interest. But if you think prices will stay flat, home reversion could be your sweet spot.
The bottom line? All three can help you access the wealth sitting in your walls, if you want to keep those walls. Just get proper legal advice before you decide what’s best for you.
Alternatively, selling up and getting proceeds into super may suit you better.
In any case, a fun fund that is a little on the sad side is not an insurmountable problem if you’re a homeowner.
This article contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
Feature image: iStock/JLco - Julia Amaral
More on funding your retirement: