Retirement Income

Income in retirement for most of us will be drawn from what we have in our superannuation and other investments, supplemented by any age pension entitlements. Are there other options for accessing extra cash if we need it?

If you are in retirement or getting close to it you will no doubt be giving thought to your sources of income and what you need to spend it on. Without earned income most of us will be reliant on our super and investments to fund our retirement income, with some help from a full or partial age pension. Like most people, you will probably budget your spending and adjust your lifestyle so that it fits within your income parameters.

Every now and then, however, there may be unexpected needs or desires that arise, which will require an extra injection of cash, such as a new car, home renovations, a special holiday, spoiling the grandchildren or unexpected medical treatment. So what options do you have if you need to source some extra money?

Accessing liquidity from your home

If you are over 60, one possibility for obtaining a cash boost is to access the equity you may have in your home via a reverse mortgage. This financial instrument allows you to borrow money using the equity in your home or investment property as security. There are no income requirements to qualify, although lenders must still take a responsible approach and assess the borrower’s situation before offering the loan.

Interest is payable just like a normal mortgage, although repayments are optional and can be left to compound until you eventually decide to sell, at which time the loan and interest must then be repaid. Proceeds of the loan can be taken as a lump sum, a regular income stream, or a line of credit, depending on what suits your purposes.

While reverse mortgages have some attractions, they do represent a significant long term commitment and you need to consider the impact it may have on your family relationships and stress levels. There may also be impacts on your pension entitlements to be considered.

Pension Loans Scheme

If you only have a relatively small need for extra income, another option may be to apply for the Pension Loan Scheme. These are offered via the Department of Human Services and the Department of Veterans’ Affairs and offer an economical way to top up your age or veteran’s pension. The interest rate is generally significantly lower than commercial equity
release loans.

Proceed with caution

Before entering into any arrangements like this, it is wise to seek advice from your financial adviser to help assess if it is right for you and to ensure that you are fully aware of the risks and responsibilities involved.