Hi Tammy, I am in my late 60s and retiring soon. I want to travel and enjoy retirement while I’m able. I also want to stay in my home long term. How do I balance both? Beth, Avalon
Hi Beth, your situation sounds very similar to a client I met recently. She loves her home and plans to stay fit maintaining her garden, but first wants to tick off an extensive travel bucket list. She worries spending more in early retirement will jeopardise keeping her home.
The key to any financial plan, particularly when balancing competing goals, is financial projections. When I projected her spending, her super was only lasting to age 80, after which she would be reliant on the age pension and accessing equity from her home. She was comfortable with the idea of using home equity, but not comfortable seeing her super nest egg depleted.
She was contemplating scaling back her travel plans, when I suggested an alternative. What if she started drawing on the equity in her home straight away, using the Home Equity Access Scheme (HEAS) to fund travel and slow the drawdown on her super?
- The HEAS is provided by the government to help older Australians access equity in their home to supplement their lifestyle.
- You must be pension age (currently 67) and meet the residence rules, but do not need to receive an age pension payment. Self-funded retirees can access the HEAS.
- The interest rate is 3.95% per year. This is less than half the rate charged on a typical reverse mortgage of 8% to 10% per year. This is also less than you expect to earn on the average super fund portfolio over the long term.
- The government provides a ‘no negative equity’ guarantee.
- So, what’s the catch?
- The HEAS loan is limited to 1.5 times your maximum age pension, reduced by any age pension payments you receive. For example, a single homeowner maximum age pension is currently $1,149 per fortnight, so the HEAS loan limit is $1,723.50 per fortnight ($44,811 per year). If you receive a part-age pension of $1,000 per fortnight, the HEAS loan limit is reduced to $723.50 per fortnight.
- HEAS loan drawdowns are paid fortnightly. Up to twice a year you can draw a lump sum in advance, but lump sums are capped at 50% of the maximum age pension.
- Interest accrues to the loan, so the balance grows over time.
- The loan must be repaid in full when you sell the property or pass away. If you downsize to a new home, you can potentially transfer the loan to your new property.
- Voluntary loan repayments can be made at any time.
The pros, cons and risks must be carefully considered. Getting financial and legal advice is a must.
Quick Tips: Use it or lose it, you can’t carry forward undrawn HEAS loan limit to future years. Matching HEAS lump sums with spending is important, as funds held in your bank account impact your age pension. Extended overseas travel can impact eligibility, always check before you depart.
Need advice tailored to your situation? Feel free to call me on 8376 0350 if you have any questions or need assistance.
Regards, Tammy
Tammy Marshman and Up Wealth Sydney Pty Ltd are Authorised Representatives of Consultum Financial Advisers Pty Ltd, AFSL number 230323, an Australian Financial Services Licensee.
This is general information only, as in preparing it we did not take into account your personal objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your personal circumstances. Although the information is considered reliable, we do not guarantee that it is accurate or complete and you should not rely upon it. Please seek financial advice specific to your situation before making any financial, investment or insurance decision.