Unlock the family home to boost your retirement income

Are you an asset-rich but cash-poor homeowner? Emmett Wilkinson has some solutions.

Unlock the family home to boost your retirement income

Owning your home is, for good reason, a goal of most Australians and for most homeowners it will become their biggest financial asset. Homes can, however, tie up your cash, so what are the options for those who want to use their home to generate extra retirement funds? Let me explain.

Downsizing is a growing trend driven by lifestyle and financial reasons. But if you are looking to come out with money left over, then you need to ‘think before you shrink’.

My widowed neighbour, Val, recently sold her family home of 50 years and bought a two-bedroom apartment in a new development close to a major shopping centre around five kilometres further out from the CBD than her previous home. The move left Val with about $400,000 in change and no lawns to mow.

Do your sums on the selling/acquisition costs and be aware that if you’re downsizing to a property with a higher land value area (e.g. moving closer to the city or to a beach hot spot), there may not be as much left over as you thought.

Moving to a retirement village is another form of downsizing, but with very different legal and ownership outcomes. It is important that you understand the entry costs, ongoing monthly costs and what you will get back on leaving the village. I strongly recommend you get a solicitor to review the retirement village contract so everyone is on the same page.  

Downsizer super contributions
Superannuation laws have recently changed to allow homeowners over 65 to contribute up to $300,000 each to their super funds from the sale proceeds of their home when downsizing. Age pensioners need to be aware that by doing this, they are turning a means test-exempt asset (the principal home) into means tested assets (super when aged over 65), which may substantially reduce age pension entitlements.

Reverse mortgages and similar products
The four big banks have now withdrawn from providing new reverse mortgages and the field has been left to the smaller players.

The interest rates and terms will differ slightly with each provider, but common to all reverse mortgages is the fact that you will be borrowing funds that you will most likely not make interest payments on. The interest will compound and the proceeds of the family home, which the loan is secured against, will be reduced by the outstanding borrowed amount and accrued interest when it’s eventually sold.

There are also products known as home reversion schemes (sometimes called equity release or unlock) where a homeowner agrees to sell a share of the future sale proceeds of his or her home in return for a lump sum now. The lump sum received now will be less than the agreed share of the home’s current value though and it is important that the complex calculations and reasonings used in these contracts are explained and understood. 

The Government’s Pension Loans Scheme (PLS) is similar to a reverse mortgage in that money is borrowed with interest accruing, which can be paid back when the home is sold. The PLS rate of interest is 5.25 per cent per annum which is lower than that charged by typical reverse mortgage providers.

It is important to note that borrowings under the PLS can only be taken as fortnightly income payments and not as a lump sum. The expansion of the scheme, which starts on 1 July, will make such loans available to all self-funded retirees (some were previously excluded) and increase the amounts that can be borrowed. Full rate age pensioners will be able to borrow up to 50 per cent of their annual pension payments and higher amounts will apply for part pensioners and self-funded retirees.  

To date, the PLS has not been taken up by many people, but it could well become more popular when the new changes take effect as having the Government as lender may allay some people’s concerns about these products.

You only live once and if having something now, but giving away something in the future means a better life in the here and now, then who are we to judge? It’s an entirely personal choice.

Granny flats
If someone – usually a parent or relative – pays you for the lifetime right to reside in your home or in a self-contained building on your property, then what is termed a ‘granny flat interest’ is created.

There are several ways these arrangements can be paid for and there may be age pension implications for the person moving into the granny flat arrangement. It is recommended that legal advice be obtained before creating a granny flat interest so that the relationship and its terms and obligations are documented in writing. It is crucial to document what happens if the granny flat interest ends prematurely. 

Developing the block
Subdividing your block and selling part of it off might be a possibility for some as might developing the property yourself.

Selling off part of your block may see you lose control of what is then built in your backyard while undertaking to build a new unit or townhouse on your land will involve legal and taxation considerations as well as the work involved in finding the right designer and builder and then living comfortably through the process.

Undertaking a property development of this type, especially if you haven’t done it before, could be a very risky retirement venture, particularly when real estate prices are volatile. 

Renting out your home
There may be options to generate some extra income by renting out a room in your home or making your home available on a temporary basis via such platforms as Airbnb.

Swapping homes with overseas or interstate visitors when arranging holidays can also be a win-win situation in containing expenses.

How about renting out your driveway or garage if it’s not fully utilised and you live near a busy station or sporting ground? Websites such as spacer.com and parkhound.com will advertise your site and you could make $100–$150 extra per month depending on supply and demand.

Do you have other clever ways to make some extra cash from your home? Have you tried any of the suggestions above?

* Emmett Wilkinson is a Certified Financial Planner who specialises in superannuation, aged care and Centrelink advice.

This article first appeared in the March 2019 Retirement Affordability Index.


    Disclaimer: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.


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    14th May 2019
    I need help! Our daughter is renting our rental property, and has not saved anything towards buying it from us, and the burden of rates, land tax etc. is drowning us. We are on a pension and have very little left in the bank since our retirement. Just wondering if you can recommend a SAFE reverse mortgage crowd to deal with, so we can pay out the rental property and provide the daughter with security, and will this affect our pension?
    14th May 2019
    Do you own your own home? If so - wait till July 1st - go through the Pension Loan Scheme. That will at least give you some extra funds. Far better than a reverse mortgage. My best friend is going through similar, and I go with her for support, to see a Financial Counselor. She is trying to sell the investment house, but her house is in the country, in a hard area to sell.
    Better still - make your daughter contribute market rate rental. If not - sorry, but she is out, and get another good tenant.
    14th May 2019
    Renting out your own property is a trap awaiting the next generation. Capital gains tax WILL be applied and children can expect to lose a quarter of the value of their inheritance as this will go directly to the Tax Office.

    After 6 years of renting that is what happens to the family home. Good luck to you ollietom. Maybe consider the next generation.
    14th May 2019
    Have you spoken to your, daughter, ollietom? Does she know how difficult she’s making life for you? If you need to sell your rental do so and your daughter will have to rent somewhere else. You don’t need that worry in retirement and you’re probably not helping her future by not making her buy her own house.
    14th May 2019
    The same crap from another voice of the government.
    Anybody who sells their prime asset and live off the proceeds will get what they deserve in their old age: poverty!
    14th May 2019
    So right Mick so RIGHT --
    14th May 2019
    Totally agree Mick.. Though this is what they want us to do. I can remember clearly watching Peter Costello give a talk some years ago, when he espoused this rubbish.

    And really just WHO would seriously consider any of the above? Remember, this is for seniors. Perhaps OK to start thinking about and doing in your 40's/50's, ready for retirement. Redevelope your block? Granny Flat? Reverse Mortgage? - yeah, they are REALLY simple, easy to do! Rubbish.

    Love it where above - under Downsizing - it states it MAY affect your pension. Of course it bloody well will! That is what the govt(s) want! They less - or no - pension they pay - the better.
    As for renting out a room, or Airbnb - good luck with that. Money is STILL taken in to affect for pension, and tax. Many older people do not understand the complexities that Centrelink deliberately throw up. Maybe those just reaching pension age - but older people - no.
    There is no way I would share my small, but MINE - home with anyone. No amount of money would make up for it. Once again, only rewarding the lazy bludgers who don't work, don't save, live in Govt housing, and have never supported themselves.
    14th May 2019
    Yes, Mick, we have looked at it every which way and it is best for us to stay put and live on the pension and be frugal. At least we have our nice, comfortable home. If one of us dies it will change I think or be very hard on the one left to cover all the bills.
    14th May 2019
    You are right Paddington. Things change drastically if you go from being a home owner as a couple, to being a single home owner. The bills all stay the same - rates, insurance, power, maintenance, etc. But the pension drops significantly. I saw the stress this caused my aunt after her husband died. As much as she wanted to stay in her own home, she reluctantly moved to Aged Care.
    14th May 2019
    Thanks for all your comments folks. More thinking to do!
    14th May 2019
    I am a bit confused. Wouldn’t your investment property affect your pension?
    You can’t negative gear it without putting in a tax form?
    How is this set up?
    14th May 2019
    Are you sure that folk receiving full pension can access the PLS? I was on the gov website yesterday and am pretty sure it said full pensin recipients are not eligible for the PLS "It is important to note that borrowings under the PLS can only be taken as fortnightly income payments and not as a lump sum. The expansion of the scheme, which starts on 1 July, will make such loans available to all self-funded retirees (some were previously excluded) and increase the amounts that can be borrowed. Full rate age pensioners will be able to borrow up to 50 per cent of their annual pension payments and higher amounts will apply for part pensioners and self-funded retirees."
    Lark Force
    14th May 2019
    Re; Retirement Villages Options. Have a good read of this blokes blog before you commit to losing the freedom of your own home. Study the graphs for the capital loss side of the option.
    And be sure you are fully cognisant of the difficulties of leaving.

    14th May 2019
    Hello Ollietom,

    If you are looking for an income stream to support your outgoings, you might prefer the Pension Loan Scheme.

    If you have some lump sum needs, plus income stream, you will need a reverse mortgage.

    Debts incurred against your investment will be offset against your assets if you receive a pension. This might be the option to take if you have some existing debt on the property.

    A little more information is required as there are multiple options.

    Paul Dwyer
    Reverse Mortgage Finance Solutions
    14th May 2019
    Hi Paul,
    Our situation is we own our home, are on the pension, but have a mortgage on our rental property, which our daughter rents from us. I was wondering if we could take out a reverse mortgage for what is owed on the rental property to pay that out. What would be the implications with the pension, and interest charged for the reverse mortgage?
    14th May 2019
    Rent would be assumed by the government. They would consider it is your choice to gift that value.
    How much equity in your rental? Is it a unit?
    This is not making sense because with a second property your assets would be above the threshold surely and/or assumed gifted rent would also affect your pension.

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