A 62-year-old woman, who is on the verge of owning her $1.2 million home outright, is grappling with the prospect of never being able to retire due to insufficient retirement savings. Despite her significant home equity, she has only accumulated approximately $180,000 in superannuation, leading to a feeling of being "asset rich and cash poor."
The woman, identified only as April, has prioritized paying off her mortgage, a decision influenced by raising children, periods of part-time work, and a divorce. Her fear of reaching retirement without secure housing led her to focus on her property as her primary financial security.
Her children have encouraged her to keep the house as an inheritance, but April questions the value of owning an expensive asset if she cannot afford to live comfortably in retirement. She is seeking advice on whether to continue working to increase her superannuation, sell her home to downsize, or explore other options.
Financial expert Vanessa Stoykov, responding to April's situation, challenges the notion that her children's inheritance should dictate her retirement plans. Stoykov emphasizes that while owning a home outright is a fortunate position, it is distinct from having a retirement income. She suggests that April's wealth should serve her needs first.
Stoykov outlines several potential strategies for April. One option is to continue working for a defined period, pay off the remaining mortgage, and focus on boosting her superannuation. Another is downsizing, selling the current property to purchase a less expensive one, thereby freeing up equity for retirement. This approach may also leverage specific downsizer contribution rules within superannuation.
Beyond selling and downsizing, Stoykov points to alternative methods for accessing home equity. She mentions Homesafe, a company that offers a non-debt solution allowing homeowners to access their property's wealth in exchange for a share of future sale proceeds. Stoykov also notes the existence of reverse mortgages and the government's Home Equity Access Scheme, advising that each has a unique mechanism.
Crucially, Stoykov advises April against making a decision based solely on her house or super balance. She recommends developing a comprehensive retirement plan with professional assistance. This plan should model various scenarios, including working longer, reducing hours, downsizing, or accessing home equity, and estimate potential retirement incomes from superannuation and government support.
Stoykov also highlights the importance of open communication with her children. She suggests April explain that while she hopes to leave them an inheritance, her home is also a critical component of her retirement plan. The goal, Stoykov asserts, is not to maximize an inheritance at the expense of the homeowner's quality of life, but to ensure the wealth accumulated over a lifetime supports her during her retirement years.