On this episode of the Friends With Money Podcast, we delve into how the family home can play a critical role in retirement planning for older Australians
Money's Vanessa Walker chats with Telstra Super's Rebecca Cheevers and Sophie McRae about downsizing contributions, the impact of selling your home on pension entitlements, and strategies for couples where one partner is still working.
They also explore the benefits and drawbacks of reverse mortgages and the Home Equity Access Scheme for retirees.
00:15 Exploring the role of the family home in retirement
01:00 Downsizing and super contributions
03:34 Impact on age pension and financial strategies
05:54 Home equity access schemes and reverse mortgages
07:56 Using the family home for aged care
#friendswithmoney #vanessawalker #rebeccacheevers #sophiemcrae #familyhome
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*Proudly brought to you by Telstra Super
Disclaimer:
Rebecca Cheevers and Sophie McRae are financial advisers with Telstra Super Financial Planning Pty Ltd ABN 74 097 777 725 AFS Licence No. 218705. TelstraSuper Financial Planning provides financial advice service to members of TelstraSuper ABN 85 502 108 833. Telstra Super Pty Ltd ABN 86 007 422 522 is the trustee of TelstraSuper and wholly owns TelstraSuper Financial Planning. Advice that Rebecca or Sophie gives is of a general nature and does not take into account the particular circumstances or needs of any specific person and because of that, you should consider your own circumstances before acting on any advice . Additionally, the scenarios discussed are based on the relevant superannuation rates and thresholds for 2024/25 and may change in future years. If you are considering acquiring a financial product from TelstraSuper you should read the relevant product disclosure statement and target market determination before making a decision which are available at www.telstrasuper.com.au. The financial services guide for TelstraSuper Financial Planning is available at www.telstrasuper.com.au
See omnystudio.com/listener for privacy information.
Episode Transcript
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.
Speaker 2 (00:13):
Welcome to the Friends with Money podcast. I'm your host,
Vanessa Walker, and today we're exploring the role of the
home in retirement. For most older Australians, the family home
is their biggest financial asset, with supercoming in a number
two now. Home ownership not only provides emotional security and retirement,
it can also be used to help boost your retirement
(00:35):
income or contribute to paying expenses such as aged care.
At the same time, selling your home can impact your
aged pension entitlements. So to walk us through some of
the important points before making any decisions, I'd like to
welcome back to the show two financial advisors from Telstra
Super Financial Fanning, Rebecca Shievers and Sophie McRae. Welcome, Thanks, Vanessa,
(00:58):
great to be here. Thanks so, Sophie, let's start with
you now selling the family home and using some of
the sale proceeds to top up your SUPER as a
popular strategy. Can you tell us more about this and
who exactly is eligible?
Speaker 3 (01:14):
Absolutely, Vanessa. Many clients with large family homes are interested
in selling. Once the kids have moved out, they can
then put some of the proceeds of the sale into
their super using what's called downsizer contributions.
Speaker 2 (01:28):
The good news is.
Speaker 3 (01:29):
That since January twenty twenty three, the minimum eligibility age
for downsizer contributions has been lowered to age fifty five.
Initially it was sixty five. That now people age fifty
five and older can access this benefit. There's technically no
upper age limit, although once you turn seventy five, super
rules prevent voluntary contributions. Importantly, there's no work test, so
(01:52):
even retirees can make downsizer contributions.
Speaker 2 (01:56):
So can you tell us a little bit more about
the downsizer contributions. Absolutely, you can contribute up to three
hundred thousand dollars from the sale of your home into
your superfund. Couples can contribute up to six hundred thousand
dollars combined, provided both at age fifty five and over.
A key advantage is that downsizer contributions don't count towards
(02:17):
your annual non concessional contribution cap, which is currently one
hundred and twenty thousand dollars for most people. However, there
are eligibility requirements such as the timing of the contribution
and how long you've owned your home. It's also very
important to note that in most cases, the contribution needs
to be made within ninety days of property settlement. That's
(02:37):
super important. These details are available on the ATO website.
Downsizer contributions can be made in addition to your regular
super contributions without worrying about exceeding annual caps, though they
do count towards your transfer balance cap. Okay, so some
takeaway from there. It's important to note that in most cases,
the contribution needs to be made within ninety days of
(02:59):
property sediment one. Now, what should people consider before deciding
to downsize?
Speaker 3 (03:05):
Boosting a superbalance at retirement is a significant benefit, as
we've been discussing so far, providing more income and retirement. However,
of course, selling your family home is not purely financial.
It can be emotionally challenging and there are costs involved
like real estate commissions, movie expenses, and stat duty. Additionally,
the surplus proceeds from the sale are assessed under the
(03:29):
assets and income tests for the age pension, which could
affect your entitlements.
Speaker 2 (03:34):
So, Rebecca, can you explain the impact of selling a
home on the age pension income and assets test.
Speaker 4 (03:42):
Yes, it's an important issue, Vanessa, and one that I
encourage my clients to consider very carefully, as the impact
to their age pension payments can be quite significant.
Speaker 2 (03:52):
When you sell your principal.
Speaker 4 (03:53):
Home that is the home that you live in most
of the time, the proceeds are generally exempt from the
assets test for up to twin four months, especially if
you plan to use them to buy, build, or renovate
a new principle home. However, these proceeds are deemed under
the income test, which means they are assessed as income
(04:14):
from financial assets. This could possibly reduce or even eliminate
your entitlement to the age pension. The Commonwealth scene is
Healthcare Card or other government pensions, and as mentioned, after
twenty four months, the surplus proceeds that is the money
that you have left over after you've either purchased, built,
or renovated your new home, are also assessed under the
(04:36):
assets test.
Speaker 2 (04:38):
So what about couples where one partner is retired and
receive a government pension but the other is still working.
Are there specific strategies for them? Yes, they are.
Speaker 4 (04:50):
One effective strategy is to use the proceeds from selling
the home to top up the super of the working
partner who is under age pension eligibility age. This could
be done with a downsizer contribution made by the working partner,
who can also use the bring forward rule. This rule
allows you to bring forward up to three years worth
(05:12):
of non concessional contribution limits or contributions depending on their
age obviously and their existing superbalance, and by doing this
they can make a one off contribution of three hundred
and sixty thousand. In this way, the working partner could
increase their superbalance by as much as six hundred and
sixty thousand dollars in one year, and this provides more
(05:35):
options for the couples and potentially leaves the retired partner's
government pension unaffected. I've seen clients use this successfully, this
type of strategy to balance their financial needs and maintain
their pension entitlements.
Speaker 2 (05:50):
The benefits of having a youngest spells. Perhaps that's a
great strategy. What about the home equity access schemes including
reverse mortgages, Sophia, can you tell us how they might
benefit home owning retirees.
Speaker 3 (06:03):
Of course, Vanessa, our reverse mortgage allows homeowners subject to
an age based criteria. To borrow against the equity in
their home without making monthly loan repayments. The loan is
repaid once the owner either sells the home, moves out permanently,
or passes away. This provides access to cash without needing
(06:24):
to sell the home. However, interest a cruise on the loan,
which can reduce the equity left for beneficiaries. Homeowners must
also keep up with property taxes, insurances, and maintenance, and
there are fees associated with setting up the reverse mortgage. Additionally,
the interest rates are generally higher than standard home loan
rates due to the deferred repayment structure. For those who
(06:48):
are age pension age or older, which is currently age
sixty seven, the federal government's Home Equity Access Scheme may
provide a more attractive option if you meet the eligibility criteria.
This scheme provides a loan secured against your home, and
you can choose to receive the loan amount as a
fortnightly payment, a lung sum, or combination of both. The
(07:10):
scheme has a non negative equity guarantee, which ensures you
won't own more than the value of your home when
it's sold. The loan can be used for various purposes
such as covering living expenses, medical costs, or funding home improvements.
Speaker 2 (07:27):
So it's effectively a loan from the government rather than
a bank.
Speaker 3 (07:31):
Yes, exactly. It's also worth noting that some retirees, after
paying off their home mortgage, like to retain access to
the equity secured against the property, using facilities such as
a home equity line of credit offered by some banks.
This could provide flexibility to access funds for various purposes,
such as renovations, home deposits when downsizing, or weddings for
(07:55):
the children.
Speaker 2 (07:56):
Now, Rebecca, let's dive deeper into how the family high
can be used when a retiree needs to move into
aged care.
Speaker 4 (08:04):
When a retiree needs to transition into aged care, the
family home can be a crucial asset. It can be
sold to cover age care accommodation costs, or it can
be rented out to generate income for these expenses. Now,
if a spouse or a dependent a financial dependent such
as a child, continues to live in the home, its
(08:26):
value is exempt from the assets test for the age pension.
Selling the home provides a significant source of funds for
age care, but it's obviously an emotional decision and can
impact on the family members who are still living there.
Renting out the home offers ongoing income, but comes also
with responsibilities and potential risks such as finding reliable tenants
(08:50):
and maintaining the property. Additionally, the rental income is assessed
under the income test for sentillent purposes, which again could
affect age pension entitlements. In saying that age pension eligibility
is not the only consideration when moving into an age
care facility, It really is just such a complex area
and as a result of that, I would always recommend
(09:12):
considering special age care advice, which many advice licensees related
to a superfund, including Telstra Super offer as a separate
service to ensure you are making the most informed and
best decision for your individual situation.
Speaker 2 (09:28):
Thanks so much, Rebecca and Sophie. It's clear that whether
you sell, rent out, or even borrow against your family home,
it certainly plays an important role in retirement. Thanks both
so much for sharing insights and also dealing with the emotional,
not just the financial aspects of this issue. Now, if
listeners want some more tips on the role of the
(09:48):
home and retirement, please visit the Telstra Super website. That's
all we have time for on this episode of Friends
with Money. Enjoy your day.
Speaker 1 (09:58):
Thanks for listening to the Friends with Money podcast. For credible,
independent and easy to understand financial commentary, visit moneymag dot
com au. Please remember that the views and opinions expressed
in this podcast are general in nature and further independent
advice and research based on your personal circumstances should be
(10:19):
sought before making an investment decision
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