How to survive in a low rate environment

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If you have your retirement savings in a term deposit, chances are you’re watching your income reduce to a trickle. In fact, some term deposit rates are barely keeping pace with inflation. Despite this, Australians have a lot of money on deposit – more than $2 billion in fact – supporting our banking system but doing little to support those reliant on interest income.

The three pillars of retirement income
You may have heard this phrase quite a bit recently; it’s been heavily used in discussions around the government’s upcoming Retirement Income Review.

The ‘three pillars’ are superannuation, the Age Pension and voluntary savings – the latter can include voluntary contributions to super, savings outside of super and the saving in your family home.

Most retirees have some form of savings and many receive the Age Pension. Often it’s not enough – especially if you’re reliant on interest income from savings.

Home equity – an important part of the third pillar
Although many baby boomers don’t have a huge super balance (after all, super came in partway through their careers, and at 3%!) they were savers – they worked hard to pay a mortgage and saved in their homes.

Although there are many to whom the family home is sacrosanct, it can be both the best place to live and the right way to fund your retirement. Research has shown that people who stay at home and remain in their community, surrounded by family and friends, experience better health, wellbeing and longevity.

Responsible, long-term use of home equity can provide a retirement income stream to supplement super and the Age Pension. It can also provide lump sum payments to top up your super, modify or renovate your home to make it comfortable for retirement or have a ‘rainy day’ fund for unexpected expenses.

If you’re wondering how home equity could improve your retirement funding, try this calculator to see how you could be better off in retirement.

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 is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434, Australian Credit Licence 391876.

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