Household capital a retirement solution claims new research
LONDON: The potential fourth pillar of retirement income, accessing household capital, could be the solution to a comfortable retirement, new research shows.
The latest research from Heartland Seniors Finance conducted by RMIT University found 90% of senior Australians want to remain in their home for as long possible but limited superannuation and the rising cost of living is restricting this.
Around 36% of older Australians live in a home that may be unsuitable for “ageing in place”, without upgrades or renovations with around 29% believing they will not be able to afford the changes required to make the home suitable for aged care needs.
In addition, the research found downsizing as an unattractive solution to release equity due to financial and physical costs and the negative impact on housing and neighbourhood satisfaction.
The university analysed data from Heartland Seniors Finance reverse mortgage loan book over a 15-year period and found the most commonly identified purpose for loans is home improvements (43%) followed by payment of existing debt (31%).
Around 13% of respondents plan to sell the family home to fund their retirement, with a further 42% undecided on what to do with the home.
RMIT echoed the sentiment of the Retirement Income Review (RIR) which found household capital and home ownership as an important fourth pillar.
RMIT suggests the fourth pillar should include equity release options like reverse mortgages.
“By releasing home equity, a reverse mortgage could help Australian seniors fund the cost of retirement and facilitate ageing in place,” RMIT said.
“There is a place for equity release products in Australia’s retirement policy mix, particularly as the retirement savings gap is expected to rise markedly in the near future.”
The RIR found accessing household capital as a plausible option as household assets have increased over the last 30 years.
Despite this, it also noted RIR households diverting their income to pay down large mortgage debt may struggle to build retirement savings outside of owning their home.
