Australia has a significant aging population and the baby-boomers are heading into retirement phase.
Politicians and economists are looking at this aging demographic and wondering how a shrinking workforce will provide the necessary tax revenue to fund the big jump in pensioners and senior services over the next decade.
Underlying some of these short-term questions is the more fundamental issue of planning for your retirement in a way which minimises your dependency on government assistance.
Studies show clearly that people who have attained home ownership during the course of their working life are in a much better position to live comfortably in retirement. Not only can home owners draw against the equity in their house but they don’t have to pay rent.
Those living on a modest pension and paying around 30 per cent or more in rent can find life a struggle.
Around 70 per cent of the population are home owners with half of these owning their homes outright and the other half paying down a mortgage.
The degree of equity depends on the size of your mortgage; if you have no mortgage then you enjoy 100 per cent equity. The greater the equity in your home means there is a greater amount of money accessible to you as a loan for other things.
A home equity loan is the most common way to access these funds and most financial institutions will allow you to borrow a significant proportion if you are gainfully employed or have reliable income to service the loan.
This might be used to purchase investment properties for example, thus utilising rental income to help repay the loan.
The costs involved may be used to reduce taxable income.
There is also a growing interest among some retirees who use the extra funds to top up existing retirement funds such as the aged pension or superannuation accounts.
Another way of exploiting the equity in your home is to sell part of your property where that is possible. This has been a common practice in the residential real estate market where properties are situated on large blocks and can be subdivided for the construction of new homes.
Downsizing to smaller and less expensive housing is another way of capitalising on accumulated equity in housing. There are generally two groups of people who downsize; older citizens who no longer require large family homes and younger people who might downsize to free up funds or meet the costs associated with a growing family.
High levels of equity in housing and a more comfortable retirement are the long term rewards that come from owning your own home. However, tapping into this wealth should only be done after seeking competent financial advice from a professional adviser.