If you’re planning to retire, or even if you’re already retired, you may be thinking about how you will meet your living expenses in retirement.
Super is increasingly playing a key role in funding the living needs of retirees. In 2022/23, it was the main source of income at retirement for approximately 33 per cent of males and 21 per cent of females.1
Apart from super, there are other potential sources of income that can play a part in helping you achieve the lifestyle you’d like in retirement.
Non-super savings
Over the course of your life, you may have accumulated a variety of assets, apart from your super. Non-super investments may include cash savings, term deposits, shares, managed funds and residential investment property. These investments typically pay income in the form of interest, dividends or rent, which can also help to meet your living expenses.
Having ready access to capital, whether it be to meet an unexpected expense, renovate your home, or take that well-earned holiday, is another important consideration in planning your retirement. If you’re planning to use your non-super assets for these purposes, it’s important to consider whether the assets can be sold, and how quickly they can be sold, which will vary from asset to asset. Some assets, like real property, generally need to be sold in full, while other assets (e.g. some managed funds) might provide limited access to capital. There may also be tax consequences or other costs that will need to be considered.
Forward planning with a financial adviser can assist in determining the best way to use your non-super investments to meet your objectives.
The Government’s social security system
The Australian Government’s social security system offers a safety net for individuals and families who require financial support during retirement. In 2022/23, a government pension was the main source of income for most retirees.2
There are many different types of social security benefits and allowances, but one of the most common benefits for retirees is the age pension.
In recent years, the eligibility age for the age pension has progressively increased. From 1 July 2023, those born before 1 January 1957 will have reached the age pension age, while those born on or after this date must be age 67 to qualify.
Eligibility for the age pension (as well as other social security benefits) depends on your income and assets. There are two tests that apply, collectively referred to as ‘means testing’. These tests are:
an assets test, and
an income test
Your age pension entitlement is calculated under both tests, and the test that produces the lowest result determines your entitlement.
Some useful resources for the age pension can be found in the following:
Drawing on equity in real property
Home Equity Access Scheme (HEAS)
The government allows older Australians to access equity in their real estate assets via the HEAS. Broadly, equity is the value of the property less any money that is owed on it.
The HEAS allows eligible participants to receive regular payments from the government, if they have equity in their home, or other real property. The HEAS also allows for limited access to lump sum payments.
These payments are essentially a loan secured against real property and interest accrues on the amount borrowed. Unlike traditional loans, repayments are not required until the property is sold, or the owner passes away.;
More information in relation to HEAS can be found here.
Reverse mortgage loans
Reverse mortgage loans are another way you can gain access to equity in your home or other real property. These are generally loan arrangements between you and your financial institution.
Depending on the agreement, the lender gives you regular payments, a lump sum or a combination of the two, in exchange for equity in your property.
For both HEAS and reverse mortgage loans, the maximum amount borrowed depends on the age of the borrower and the value of the property used as security.
Inheritances
A windfall, such as an inheritance, can help with retirement funding.
It’s often unknown when and how much you’ll receive and therefore having a financial plan that considers various scenarios is advisable.
The receipt of an inheritance can have a positive financial impact. There may be flow-on implications that are good to be aware of. For example, it could reduce your entitlement to the government age pension. Also, selling an inherited asset could increase your tax liability.
Seeking advice to help with your retirement planning
Super is forming an increasingly important component in the funding of retirement; however, being aware of the various ways in which living needs can be met is essential when planning retirement. We recommend seeking advice from a qualified financial adviser to navigate this planning effectively.
