Houses are more than just a roof for retirees

USING your property wisely can have an affect on pension payments, but be careful not to get caught up chasing a few extra Centrelink dollars.

How to make the most of your house

RETIREES’ homes are gaining greater importance when it comes to money matters.

Residential property prices have performed better than other traditional investments like shares and bank deposits over the past decade.

And houses can plan a key role in pension, aged care and other strategies.

The age pension asset test will be tightened for more than 325,000 retirees from January, and the family home remains the only asset that is exempt.

This means a renovation can both improve a home and potentially increase pension payments, as can upsizing to a more expensive home, but experts say people should put lifestyle first.

Wealth On Track principal Steve Greatrex says it can be a mistake to make big property decisions in an effort to gain a few extra dollars of pension.

“Australians tend to do that too much rather than think about where they want to live,” he says.

Greatrex says some pre-retirees are buying an investment property — perhaps near the coast — with an eye to it becoming their main residence when they stop working. This can deliver tax benefits such as negative gearing, which may disappear when the employment income stops rolling in.

Property as an asset is much less liquid than cash, super, shares and managed funds. “The problem is you can’t sell the bathroom to pay for the holiday,” Greatrex says.

Houses can plan a key role in pension, aged care and other strategies.

Reverse mortgages allow people to borrow against the equity in their homes without having to make interest repayments. For example, a retiree can top up their pension by withdrawing an extra $200 a week via a reverse mortgage, but must be aware that the unpaid interest will multiply their overall debt over time.

Greatrex says many retirees still see their homes as something to leave for the kids, and do not want to take out reverse mortgages.

“Although it may make sense on paper and other levels, culturally and emotionally I don’t think Australians are ready for it,” he says.

Planning For Prosperity senior adviser Bob Budreika believes reverse mortgages will eventually pick up as people live longer in retirement, but perhaps not immediately. “We’re just too conservative — there’s a resistance to do it,” he says.

Budreika says January’s pension changes will give more people with lower asset levels a greater pension. Couples with $375,000 of assets apart from their home won’t need to think about property strategies because they will receive a full pension.

“The home itself doesn’t do anything except consume capital,” he says.

Budreika says when thinking about their property, retirees should look at the bigger picture including their own longevity and potential aged care strategies.

“Look at alternatives. In the short term you might get an up-tick in pension but long term it’s put into an asset that you can’t liquidate unless you do a reverse mortgage,” he says.