CITRO INSIGHTS: The conversation reshaping how Australia funds retirement

Dr Josh Funder explains why the wealth already sitting in the family home could be the key to transforming how Australians age… and why so few people realise it.

By Citro Insights

In this important Citro Insights segment, we sat down with Dr Josh Funder, CEO and managing director of Household Capital, about the need to transform Australia’s approach to our ageing population. 

Josh explains that the inspiration for Household Capital came from the recognition that many Australians over 50 are worried about having enough money for retirement. The fact is that while financial adequacy for baby boomers is "stretched in super," 80% of Australian baby boomers are retiring as homeowners. The median super balance for this generation at retirement is $200,000, but the median home equity is $800,000.

The "light bulb moment" for Josh was the realisation that the biggest impact could be made by giving all Australians access to a portion of their $800,000 in median home equity to complement superannuation and the pension, providing 25 years of confident retirement at home.

The problem is that while Australians are the wealthiest retirees in the world at a median level, three-quarters of that wealth is in the home and only a quarter is in superannuation.

Most retirees don’t know they can safely and responsibly access the wealth in their homes, so many are under-spending, squirrelling away their super for a "rainy day" or future needs. 

LISTEN TO THE CONVERSATION

Safely accessing the wealth in your home

Australia has world-leading federal customer protections for safely accessing home wealth. And the Australian government names home ownership (as part of private savings) as one of the three pillars of retirement funding and income, alongside the compulsory Superannuation Guarantee and the government age pension.

Home equity can be accessed to meet retirement needs, and Josh mentions 3 key recommendations from financial adviser Noel Whitaker:

1. Know how much home equity they have access to.
2. Actively manage that home equity.
3. Don't blow it.

By the way, it’s not mentioned in Josh and Toby’s chat, but rest assured that Neil Whittaker’s “don’t blow it” maxim is nicely taken care of via the National Consumer Credit Protection Act, which provides important consumer protections. These include:

• You retain full home ownership
• No need to make any regular repayments
• Guaranteed occupancy for life: no one can force you to sell or move out
• No negative equity guarantee: you (or your estate) will never owe more than your home is worth

In other words, you’re not risking the roof over your head, even if house prices go down.

Smart ways to use the equity in your home for retirement

So, what kinds of things can you use your home equity for? Josh goes on to outline 5 major ways people can use their home equity to meet their changing needs:

1. Improve your retirement funding: Whether that’s through drawing an income, taking a lump sum, or getting approved for a future contingent amount for a "rainy day".
2. Refinance bank debt: Most people don’t realise it, but you can access the equity in your home to pay down your mortgage. It’s non-recourse, provides housing security for life and removes the drag of monthly repayments on retirement income.
3. Renovate your home: Making your home suitable as you age, which also means you’re investing in a capital gains exempt asset. So it improves lifestyle (or increases the time you can stay independent at home) and can improve the bequest value of the home.
4. Intergenerational giving: Being the "bank of mum and dad" to help kids with first home buyer deposits or help grandchildren with educational or other expenses. In other words, passing on your legacy early, when the kids need it most. Find out more about how it works here.
5. Enhanced care: Using the wealth in your home for in-home care, maintaining private health insurance, or allowing one partner to transition to an aged care facility while the other stays home on an improved income.

More on this: 14 truly useful ways to use your home equity

In almost all circumstances, accessing home equity is tax-free and doesn’t affect the age pension, especially when drawing an income, paying down a mortgage, renovating the home, or paying for aged care. You can find out more about that here.

Josh points out that a homeowner at age 65 with a $1 million home, can generally access about $250,000 in home equity, which for most people doubles their super. This amount will increase if the home grows in value and as the person gets older.

The takeaway

If he had a magic wand, Josh would want all Australian homeowners at age 60 to know these 3 things:

1. When they can get the age pension.
2. What they’re going to do with their super during retirement.
3. How much access to home equity they have and what they want to do with it.

If you’re 60 and over and keen to find out more about accessing your home equity, start here:

1. Learn about how a Household Loan works and how it’s different to other equity release options.
2. Use Household Capital’s free calculator to see how much equity you could access.

^{Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764. Citro may receive a referral fee for credit products obtained from Household Capital.}

^{This email contains general information only. It is not financial or legal 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.}