How can you access extra cash in retirement beyond your super and pension?
Once we finally cease work and earned income stops, 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. But what if we have an unexpected need or opportunity arise and need some extra cash beyond our budget? It could be for a new car, a special holiday, medical emergency or just spoiling the grandchildren.
Accessing home equity
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 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 adviser to help assess if it is right for you and to ensure that you are fully aware of the risks and responsibilities involved.