Should retirees use their own property to pay for their retirement benefits?

“For many people, taking an extra $250,000 out of their property will make a huge difference and also free up 70 to 80 per cent of their home’s value for other purposes, such as funding their aged care, managing unexpected retirement risks and leaving a legacy for their children,” Boll said.

Despite the media hype about retirement, most Australian retirees are not living off their millions, sitting on the beach and spending their children’s inheritance. Quite the opposite is true. Most live fairly sensibly, some frugally, cobbling together income from multiple sources to make ends meet and finding smart ways to live well if they can afford it.

Their sources of income are limited, usually a small pension, old age pension and, in some cases, income from rental properties. Their super balances are small because they pay far less than today’s mandatory contribution rate of 11.5 per cent in most years.

Adding to these difficulties, 80% of retirees own their homes without a mortgage, and with home prices increasing over the decades, these assets are extremely valuable.

Most older people don’t think of their superannuation as a financial asset, or even as an asset they would want to consider using to improve their living standards. Most think of their superannuation as something they would want to leave to their children in their will, and use to pay for their retirement expenses if necessary. And because our family home is exempt from the superannuation asset test, it becomes something sacrosanct, no matter how much it’s worth.

But it doesn’t have to be this way. People can choose to downsize, freeing up funds to invest in income-producing assets to improve their lifestyle. They can also access some of the funds without selling their home.

Governments can do more. What can people do now to gain equity associated with their homes?

You can downsize and put the money into retirement tax-free

The Government offers a generous downsizing concession for those who have owned their principal residence for more than 10 years and are selling to free up capital. You can put up to $300,000 per person (up to $600,000 per couple) into super tax-free from the proceeds of the sale. This money can then be invested and generate an income that can support your living costs and lifestyle.

You can get a source of income and use your home equity to borrow money

The government offers a strong home equity loan program, which is basically a reverse mortgage for income only. They let you borrow against the equity in a home or other real estate you own in Australia.

The amount borrowed is paid as a biweekly loan and can be added to your existing pension, or as a standalone payment if you are not receiving a pension. Interest is charged on the loan, compounded every two weeks. The interest rate is 3.95%, which is more than 50% lower than the commercial market for reverse mortgages.

You can take out a sum of money through a reverse mortgage or home equity

You can get a loan using your home equity as collateral through a commercial reverse mortgage provider or a home equity release company.

You need to understand the different products on the market and which ones are properly regulated. The Australian Securities and Investments Commission (ASIC) has some pretty good protections in place for debt products such as reverse mortgages to ensure that there are limits on how much you can borrow and how much you can contribute towards your home over your lifetime.

These differ from equity-style solutions, where a company holds a stake in your home, and equity-style solutions are not centrally regulated, being subject only to real estate regulations.

So what can the government do to encourage us to use our homes more to fund our retirement? The Society of Actuaries paper has some good suggestions:

They can reduce layoff costs

Downsizing is expensive. Estate agent fees, stamp duty, legal fees and moving costs can all be a headache. The government could support this move by reducing stamp duty on transactions for people over 55 who are downsizing.

They can take a portion of the family home

The government could relax means-testing rules for pensions, by testing at least part of the value released from protected assets (such as the family home) and keeping it in a dedicated designated account or through the purchase of a lifetime annuity within 12 months.

The document suggests that the protected amount could be up to $300,000 per person ($600,000 for a couple) and could be excluded from the asset and income tests.

They can limit the value of assets protected by the pension assets test

As property values ​​have soared over the past 30 years, there have been growing calls to make the super asset test fairer by gradually including the value of the principal residence in the reasonableness threshold. Mr Boal suggested setting the value should be open for consultation and different thresholds could be applied to different areas or postcodes.

Finally, they can continue to push for consumer protections for reverse mortgages and home equity releases. These industries are much larger in the UK and have pointed the way to growth over time, but they can’t grow if we don’t make them safer, more transparent and easier to understand.

Ultimately, we need to stay informed and know that the sources of our retirement funding will change as our sources of funding shift from Social Security today to the assets released from housing tomorrow to the generation building up pensions for the future.

Bec Wilson is the bestselling author of How to have a perfect retirementShe is on epicretirement.net and hosted Prime Time podcast.

• The advice provided in this article is for reference only and is not intended to influence readers’ decisions about investments or financial products. Readers should always seek professional advice that takes into account their individual circumstances before making financial decisions.