In their 2018 Retirement Income Report based on a survey of 7,305 Australians over the age of 40, Australian research firm, Investment Trends, revealed that only 46% of Australians feel prepared for their retirement. Of these, only 25% believe that they will live comfortably in retirement. Will that really be comfortable enough for you or will you better off with FMD's No Compromises standard?
|ASFA Retirement Standard||Annual living costs||Weekly living costs|
|Couple - modest||$39,353||$754|
|Couple - Comfortable||$60,264||$1,154|
|Single - Modest||$27,368||$524|
|Single - Comfortable||$42,764||$819|
Source: ASFA Retirement Standard
|FMD 'No Compromises' Retirement||Annual living costs||Weekly living costs|
In addition, the report states that 51% of retirees expect to outlive their retirement savings. If you expect to live on more than the Age Pension (full Age Pension rates plus supplements are $35,916 for a couple, or $23,824 for a single person, applicable since 20 September 2018), you will need to use smart strategies to find the additional income.
Ever considered downsizing, utisling reverse mortgages or the Pension Loan Scheme?
Unlocking the equity in your home can be an effective way to achieve your lifestyle goals and generate more income in retirement. However, it will also reduce the size of your estate and the amount of wealth you can pass to the next generation. We explore the pros and cons of the three main financial strategies.
Option 1: Downsize your home and invest or live off the proceeds
What is it?
Selling your home to move to a smaller, lower-cost home to free up cash to invest and create an income stream.
Frees up cash and allows the money to be reinvested tax-free into superannuation. From 1st July 2018 those aged 65+ can invest up to $300,000 ($600,000 per couple) from the proceeds of the sale of a primary residence (held for 10 years or more) into their super fund and then draw an income stream. Money can be invested on top of the $1.6 million contributions cap and is not impacted by the work test. Read more about the opportunity for downsizers to boost thier superannuation here.
The proceeds of the sale are assessable for the Age Pension Assets Test, so it is likely to reduce your Centrelink Age Pension. For those in aged care, it will also increase assessable assets and is therefore likely to increase aged care fees.
Option 2: Use a reverse mortgage to unlock home equity
What is it?
A reverse mortgage is a type of home loan that allows you to borrow money using the equity in your home as security.
Delivers additional income throughout retirement and providing you draw-down on your reverse mortgage as an income stream it won’t be assessable for Age Pension or aged care purposes.
Interest rates are typically higher than for other type of loans and debt can grow quickly due to compounding.
Option 3: Use the Pension Loan Scheme (PLS) to generate more income
What is it?
The Pension Loan Scheme (PLS) is essentially a reverse mortgage provided by the government. The government takes a stake in your home and receives the money back (with interest) from your Estate.
From 1st July 2019 anyone of Age Pension age will be able to access the PLS. Maximum rate age pensioners can borrow up to 50 per cent of the maximum rate of fortnightly Age Pension, part-rate age pensioners can increase their fortnightly payment up to a maximum of 150% of full Age Pension, while self-funded retirees will be able to borrow up to the full 150% of the maximum rate Age Pension.
A relatively straightforward way to generate additional retirement income without leaving the family home. The interest rate charged (currently 5.25% p.a.) is typically cheaper than a reverse mortgage from a bank.
Unlike a reverse mortgage from a bank, PLS income will be included in aged care means testing, so using the scheme while in aged care may significantly increase costs.
Picking the right option for you
The Retirement Income Report also revealed that when seeking help with their retirement goals, 33% Australians are most inclined to turn to a financial planner, and 25% to their super fund, for assistance. Whether you choose to get professional financial advice or go it alone, the key to a comfortable retirement lifestyle is to act now. If you'd like to speak to an expert, you can book a consultation with me or one of my colleagues by clicking the link below. There is no charge for the first meeting so it's a great opportunity to see if we can help you acheive your retirement goals as we have helped so many others. But don't take my word for it, see what our clients say.
Geoff and Fiona Freeman
I turned to Richard Dahl for advice about managing a small portfolio of shares when I was just 21 and working at Mitsubishi. When I got my first well-paid job at 23, I used his advice again to get serious about building my superannuation. My goal then was to retire at 50. I’m now 55 and semi-retired, set to retire fully next year. Richard’s advice has seen us through everything from paying off the house, to the kids’ education and making the most of a redundancy package. Our relationship with Richard has also helped cement our financial goals as a couple. The annual review meeting has kept us on track and it’s been great to see our savings and investment projections turn into reality over the years. After all the hard work and raising two independent daughters, we’ve gone full-circle and now it's time for us again.
FMD’s advice and support was invaluable when retiring from corporate life overseas and returning to Australia. I needed advice on consolidating assets in multiple countries so I interviewed three advisory firms and was most impressed with FMD. After meeting to understand my needs, they committed to putting a detailed plan together in a few short days, and that’s exactly what they did. Many years later, Jason Calleja now works closely with me to manage my money in retirement. I’m very happy with their investment performance over the long haul, but it’s their commitment to their clients that’s truly outstanding.
Megan and Andrew James
Megan and I sought advice about improving our superannuation and personal insurances in the lead-up to starting a family. Jason was amazing, taking us through our options and working with us to restructure our super investments and obtain affordable insurance with the desired level of cover. We would recommend Jason and the FMD team to anyone seeking financial advice. We look forward to working with him to shape our financial security in the future.
After a successful career in pharmaceuticals, I took a redundancy package and was recommended to FMD Financial for investment advice. Like many people, I was sceptical about financial advisers after a bad past experience. Aaron’s considered approach and FMD’s robust investment process changed my mind and five years later FMD now manages our superannuation through their Active Management Service (AMS). One of the things I really like is that they follow a rigorous process and always give a clear and transparent rationale for every investment decision. My husband was even more sceptical than me, but now he sees the value of good advice. My redundancy package was the trigger to contact FMD, but I’ve since realised the benefit of getting your "ducks in a row" in your 40s, while you still have time to make a difference to the money you'll have later. I would really encourage more people to get advice earlier in their working life. If you’re looking for a knowledgeable financial adviser that you can absolutely trust, give Aaron a call. He is genuine, supportive and great to deal with all-round.
Bob and Val Higgins
Anna was unbelievable in helping us navigate a stressful year in the transition to retirement from our own business. In the end, we got a great outcome and we’re eternally grateful for her help. Both Anna and Martin are always there to listen and over the years their advice has been spot on. Now we can relax knowing we’ll have the money we need in retirement. FMD make the financial side of life easy and we trust them implicitly.
Bruce and Jill MacKenzie
We were referred to David Batchelor by a friend when we needed advice on investing the proceeds of a property sale. David and his associate adviser, Sandra, were able to give us strong investment advice and implement it quickly and efficiently. Since then, the communication has been excellent and we always know where things stand. My wife and I now enjoy the security of knowing our money has been invested wisely and ethically. We appreciate the regular portfolio reviews undertaken by the FMD Investment Committee and are confident our money is being well managed. We’d certainly recommend FMD to others looking for sound financial advice.
Mum went downhill after Dad died and eventually we decided a care facility was best for her now she is in her late eighties. Mum and Dad’s investments with FMD enable her to be in a place she loves and their support has been invaluable. We had to move quickly to secure a place, so Anna modeled three financial options for us. Her knowledge of the process and paperwork was a huge relief when we had very little time and felt pressured to make a decision. I have great confidence in Anna’s judgement and knowledge of the Aged Care sector and I know I don’t have to worry as FMD have it covered.
I first met David Batchelor when I took a voluntary redundancy five years ago. David helped me move from a defined benefit scheme into a super accumulation fund and plot a path to early retirement. It was refreshing to meet a professional and knowledgeable adviser who was more interested in my needs than their own. Under David’s guidance I now have more money than when I started investing with FMD Financial, even though I’m drawing a comfortable monthly income stream. Life is short and I’m enjoying the retirement lifestyle I want with the confidence my money will last for the long haul. I've met other FMD clients at their regular events and no-one has a bad word to say about them. I'd certainly recommend David and the team to anyone facing redundancy and looking for expert financial advice.
I was a couple of years away from retiring when my job in the IT industry was made redundant. I was uncertain about the future and knew I had to be careful with my money. Seeing Jason Calleja at FMD Financial cleared the fog. He showed me how to use my payout, super and other assets to create an income that would give me the lifestyle I wanted in retirement. Now I'm busy doing the things I love - volunteering, travelling and spending time with family and friends.
I'd recommend FMD to anyone looking for advice on redundancy or retirement.
I interviewed three different Financial advisers and found the most comfort with FMD. Michael, my adviser, opened my eyes to the potential of my retirement wealth giving me excellent direction as to what I need to consider in the future. Now I have a legal will, adequate insurance protection, a shares portfolio along with a far more lucrative superannuation fund building my future.
Jason Calleja was a source of great comfort as he provided us with all the information we needed to ensure a smooth transition for Dee's mum. He explained the legislation, prepared financial spreadsheets with projected multi-year income and costs, arranged tours of aged care facilities; liaised with Centrelink. Jason continues to be responsive to our ad hoc questions. We have no hesitation in recommending FMD's services when families face these challenging and emotional decisions. Having access to their knowledge of the system and financial modelling enables the family to focus on the wellbeing of the parent.
My introduction to FMD 10 years ago facilitated an unexpected life change - to my delight, retirement was a possibility far earlier than expected. The strong relationship built to support my wealth management has given me peace of mind, removed work stress from the equation and contributed greatly to my happiness. I love my life and truly enjoy every day - I don't know how I ever had time for work!
I have been working with FMD Financial for the past five years. They are professional and knowledgeable and they’ve helped me make the most of my money. They have been able to help me develop a portfolio of investments that supports the needs of my growing family and my future wealth.
FMD Financial were recommended to me 13 years ago when I became concerned my previous company was not looking after my needs; and tended to chase quick profits which often became exactly the reverse. David Batchelor has been my Funds Adviser since and has delivered great service and communication while operating with integrity. He is backed up by a company structure that includes an active internal Investment Committee (IC) that constantly reviews their overall investment structure including detailed research of individual investment targets. I am totally satisfied with their service and their motto ‘Health, Wealth and Happiness’ has made a very positive impact on my life in retirement.
Retain your family home while tapping into your equity
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.