Seniors should buy property before the Age Pension for financial security and independence, but avoid using pension funds for purchases.
As people approach retirement, the question of housing often takes centre stage. For many Australian seniors, the dream of owning property is not only about having a place to call home but also a strategic financial decision.
In this guide, let’s talk about the importance of seniors buying their own property before reaching the Age Pension threshold and explain why it’s essential not to use your pension or super to buy property.
Owning Property Before the Age Pension
There are a number of reasons why it may be viable to buy and own a property before you ever reach the Age Pension eligibility, which is turning 67 years old on or after 1 July 2023.
Financial Security
Property ownership provides a valuable asset that can be used as asset or sold if the need arises. This can be particularly crucial for covering unexpected expenses or long-term care in later life. When you own your home outright, you eliminate ongoing rental or mortgage expenses, making it easier to manage a fixed income during retirement. This is even better if you have been able to pay off any mortgages through sound financial management, including refinancing.
Independence and Control
Owning your property means you have control over your living space. You can make modifications and decisions without needing approval from landlords or property managers. You won’t have to worry about rent increases, eviction notices, or changes in property management policies.
Legacy for Heirs
Property can serve as a valuable inheritance for your heirs, helping them secure their financial future. Passing down a family-owned home can hold sentimental value, preserving your family’s history and memories.
Downsizing Opportunities
If your property appreciates in value over the years, downsizing to a smaller or more manageable home can release funds for retirement living expenses or travel. Smaller properties often require less maintenance, allowing you to enjoy a more relaxed retirement.
Potential Rental Income
If you have extra space in your property, you may consider renting out a portion of it, creating an additional income stream during retirement. Rental income can help offset property-related expenses, such as maintenance, property taxes, and insurance. However, angling part of the property as a rental space may require the senior to assume landlord roles such as screening tenants and ensuring rental payments are made on time.
Buying Property with Your Pension or Super?
While property ownership is a valuable financial goal for seniors, it’s essential not to use your Age Pension or superannuation to buy property. Here’s why:
Preservation of Retirement Savings
Your superannuation is designed to provide income during retirement. Using it to buy property can deplete these savings, leaving you with insufficient funds for living expenses. Relying on the Age Pension to fund property acquisition can lead to reduced pension payments or even disqualification, as the pension assets test includes property values.
Ongoing Costs
Owning property entails various ongoing costs, including property taxes, maintenance, insurance, and utilities. Relying on a reduced pension or super to cover these expenses can be financially unsustainable. Property is not a liquid asset, meaning it cannot be easily converted into cash. Using your pension or super to buy property can limit your access to readily available funds for everyday expenses.
Risk and Diversification
Putting all your retirement savings into a single asset, such as property, can be risky. The property market can experience fluctuations in value. Relying solely on property for retirement income may expose you to these market fluctuations. Your financial advisor may evaluate your liquid standing and possibly recommend putting money into other ventures to ensure a stream of passive income, such as bonds and stocks.
Impact on Age Pension
Owning property can impact your eligibility for the Age Pension and the amount you receive. Property values are included in Service Australia’s Age Pension assets test, which can reduce or eliminate pension payments for some seniors. Rental income from property is assessed in the income test for the Age Pension. This can further affect the amount of pension you receive.
Strategies to Buy Property without Using Pension or Super
Savings and Investments
Build a separate savings and investment portfolio to fund property acquisition. Consider income-generating investments such as bonds, dividend stocks, or managed funds.
Downsizing
If you currently own a larger property, consider downsizing to a more affordable home. Use the proceeds from the sale to purchase a smaller property without impacting your pension or super.
Government Grants and Programmes
Explore government grants and programmes that provide financial assistance to seniors for home purchases or renovations. These programs can help reduce the financial burden of property ownership.
Financial Planning
Seniors who may have difficulties with retirement planning must consult a licensed financial advisor experienced in handling retiree cases. They can help you create a comprehensive strategy that aligns with your retirement goals and financial situation.
Conclusion
Owning property before your 67th birthday, the current Age Pension eligibility age, can provide financial security, independence, and peace of mind during retirement. However, it’s crucial to avoid using your pension or superannuation to buy property, as it can affect your retirement coffers in many ways. By looking forward and making informed financial decisions, seniors can achieve the dream of property ownership while safeguarding their retirement finances.
The A.S.A.G. Reverse Mortgage
The A.S.A.G. Reverse Mortgage can aid any efforts by seniors to buy a new retirement property before they ever hit retirement age, including those eligible under SHP. A Retirement Planning package, for example, can allow seniors to explore their options while several years away from reaching Age Pension time.
Call the A.S.A.G. at 1300 002 724 or send an email to info@asagfirst.com.au to discuss your property finance options as part of preparing for your retirement. You can also use the equity assessment tool below.
DISCLAIMER: This article is for informational purposes only and does not constitute official advice. A.S.A.G. is not affiliated with any mentioned brands or companies.