Drawing retirement income from your home

Your home is more than just a place to live—it can also be a source of income in retirement.

By Joel Atputharaj - 3 min read

A little about Joel

Joel Atputharaj is a senior manager at Russell Investments. A Fellow of the Institute of Actuaries and a registered Financial Adviser, he helps clients navigate complexity and has worn many hats across the superannuation and consulting businesses, Joel is currently leading a program of work to enhance the Russell Investments offer to those who are approaching, at or in retirement.

There’s an old saying ‘you can’t have your cake and eat it too’—but the same doesn’t apply to houses. With home equity release, you can keep your home and use its equity for retirement income.

Even receiving relatively small portions of home equity as retirement income can substantially improve your lifestyle in retirement.

What is home equity release?

Equity is the value of your home that you own, excluding your mortgage or other debt you may have secured against that property.

Equity release allows you to take some of your equity out of your home and use it for other purposes, such as to pay for medical expenses, renovations or general living costs.

The amount of money you can draw from your home depends on:

• your age
• the value of your home
• how much equity you own in the property
• the type of equity release.

Equity release options

There are several types of equity release.

The Australian Government offers the Home Equity Access Scheme (formerly known as the Pension Loans Scheme).

Some private companies offer:

• reverse mortgages
• home sale proceeds sharing / home reversion products
• equity release agreements

What are the Pros and Cons?

Generally, the common features of these products are that you:

• are over 60 to access them
• Need to own your home outright or own your home with a mortgage
• Can take money out of your home while you continue to live in the property.

Each arrangement has different conditions and costs associated – and there can be implications for your family members and other people you live with. It’s essential to understand the details before you sign up.

You can read more about each type of home equity release product at Moneysmart.gov.au.

For more on the Home Equity Access Scheme, you can contact the Centrelink older Australians line or the Services Australia Financial Information Service. Independent financial advisers and legal professionals can also assist.

How can it fit into a retirement income strategy?

Withdrawing money from your home may allow you to supplement your regular income so you can live a more comfortable lifestyle in retirement. It could also help you pay for a one-off expense, so you don’t have to save up your regular income (from your superannuation or government age pension, for example) to cover the cost – or sell and move out of your home.

Home equity release options won’t be right for everyone but knowing that you can tap into your home’s equity can provide the comfort of an extra source of funds, should you need it.

Questions to consider How much can you get? How will the arrangement affect your ownership of your property? How much will the repayments, interest and/or fees cost in total? When, and how, will you need to make repayments, or will it just be on the sale of your property (e.g. when deceased)? Can the equity you release be taken as an income stream or a lump sum, or a combination of the two? How will it affect your eligibility for the Government Age Pension? How does it impact your Age Pension entitlement i.e. how much will you receive? Will someone else who lives in your home with you be able to stay in the property when you move out or die? Do you fully understand the fine print of the agreement (if not, seek legal or professional advice)?

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* The opinions expressed are those of Dr Jon Glass and 64Plus. Russell Investments does not endorse, and is not accountable for, any views expressed by Dr Jon Glass or 64Plus.

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