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Asset-rich, cash-poor Australians can use the equity in their properties as a way of topping up any shortfalls in retirement, industry experts have said.
According to Household Capital, 439,000 Australians intent to retire within the next eight months, despite the average savings being below the recommended levels.
With Australia’s median household superannuation balance at retirement being approximately $200,000 and the median value of home ownership at retirement is $700,000, retirees can draw on the $700,000 in equity to fund their future needs.
Household Capital chief executive Joshua Funder believes that innovative changes, such as the use of equity in property, can help retirees bridge the gap between what they currently have in equity and what they will need to fund their retirement.
“As the average age of Australia’s population continues to increase, so does the need for innovative funding solutions to support this demographic shift,” said Mr Funder.
How does it work?
A reverse mortgage allows the retiree to borrow money using the equity in their home as security. Interest is charged like any other loan, but they don’t need to make repayments while you live in the home. The loan must be repaid in full if the retirees sell the property or passes away.
Household Capital believes the drawdown facility has been developed due to strong demand from financial advisers who are looking to help retirees fund their futures.
“There are various expenses which can arise in retirement, so we have developed a flexible funding solution which can be tailored for these individual requirements whatever they may be,” Mr Funder added.
“The Household Loan is designed to meet the needs of Australian retirees by allowing them to balance their savings, continue to grow their assets during retirement, and harvest a sustainable income from their investments,” Mr Funder concluded.