Asset rich and income poor is the dilemma faced by many retirees. But there may be opportunities to boost your income in retirement by tapping into your biggest asset – your home.

With property prices booming, many retirees are finding that the home they have lived in for decades is worth a small fortune, but for various reasons they don’t wish to sell or downsize.

What many may not realise is that you can have your cake and eat it too. Or, in this case, convert part of the value of your home into an income stream while you remain living there.

The ability to borrow against the equity in your home without having to repay until you move out or sell comes in various guises, but the result is largely the same – an enhanced lifestyle in retirement. The extra income may allow you to enjoy some little luxuries, travel more, or pay for home improvements.

There are four key types of product on offer:

• Reverse mortgage
• Home reversion
• Equity release agreement
• The government’s Pension Loans Scheme (PLS).[refer]

None of these strategies should be adopted without careful consideration as they may have an impact on your family, your beneficiaries and – with the exception of the PLS – your Age Pension if you receive one.

As a result, we recommend you speak to us first to discuss whether accessing some of your home equity would be appropriate for you.

This is how these products work:

1. Reverse mortgage

A reverse mortgage lets you borrow money against the value of your home and take it as an income stream, a line of credit, a lump sum or a combination.

The amount you borrow is often determined by age. At 60 you can generally borrow 15-20% of the value of your home. This percentage increases by 1% a year.

The interest accrues and is paid when you sell, either on entering an aged care facility or from your estate when you die. The interest rate is usually higher than the standard mortgage rate, but you don’t have to make repayments along the way. Since 2012, reverse mortgages must come with a negative equity guarantee. This ensures you can never end up owing more than your home is worth.

2. Home reversion

Here you sell a percentage of the future value of your property at a reduced rate. It is not a loan, so there is no interest payable. However, there are immediate costs such as a property valuation and an upfront fee. And there is also the cost of losing the full benefit of your home’s increase in value over time. The more your home’s value increases, the more the provider will receive.

3. Equity release scheme

This third option lets you sell a percentage of the value of your home in return for a lump sum or an income stream. You pay fees which are periodically deducted from the remaining equity in your home, so your share diminishes over time.

4. Pension Loans Scheme

The Federal Government’s loan scheme is offered through Services Australia and the Department of Veterans Affairs.

You can access a voluntary non-taxable fortnightly loan up to 150% of the maximum Age Pension rate to bolster your retirement income with the loan secured against your home. You don’t need to be on the Age Pension to qualify but even if you are, this government loan does not impact your pension entitlements.

Your mortgage increases by the payment amount plus interest which currently stands at 4.5% a year. As with the other schemes, you don’t need to repay the loan until you move out or sell. And if your circumstances change, you can adjust the loan accordingly such as pausing payments.

All four options are variations on a theme of providing a better lifestyle in retirement.

If you want to find out if any of these options might play a role in your retirement income strategy, don’t hesitate to call us to discuss.

Inflation appears to be firmly on the rise and while that is bad news for consumers it’s not necessarily bad news for investors. In fact, inflation may provide new opportunities.

In the September quarter, the consumer price index (CPI) rose 3% year on year, a level previously not forecast to be reached until 2023. The underlying rate of inflation, which removes extreme price changes and is generally considered a more accurate reflection of what is happening on the ground, increased 2.1% on an annual basis.

Now the Reserve Bank of Australia (RBA) is looking at bringing forward interest rate rises in the wake of this growing inflation rate. When it does, it will be the first time in 11 years that the bank has raised interest rates.

This development is highlighted by the RBA’s relaxing and then abandoning its target for the 3-year government bond rate (the benchmark) which it had originally set at 0.10%. By the start of November, the market had pushed this rate above 1%, 10 times the RBA’s original target, effectively forcing its hand.

The RBA’s stated aim is to keep the inflation rate within its 2-3% target range. But some seasoned market observers are forecasting the rate could get as high as 3 to 5% by 2023, and perhaps a touch higher.

So why is this happening now?

Factors behind the rise

There has been a combination of factors leading to the uptick in inflation, mostly resulting from events stemming from the COVID-19 pandemic and the prospect of a recession fading fast.

These influences include cost pressures from global and local supply chain bottlenecks along with higher energy prices, an uptick in rents and rising insurance costs.

A shortage of labour, partly on the back of the absence of migration and casual overseas workers throughout the pandemic, is now also putting pressure on wages.

For some months, there has been debate over whether inflation was just a transitory event in the wake of COVID, but it is beginning to look more permanent as the months go by.

Opportunities for investors

Inflation is not all bad news for investors, but it may change the way you think about your investments.

The low interest rate regime that led to soaring property prices has left many investors with healthy gains in asset prices, adding to their wealth. While the move to higher interest rates may make borrowing money harder and take some of the boom out of the housing market, it is worth remembering the gains made to date are unlikely to be completely wiped out.

But it’s not just property; all major asset classes are highly valued at present.

Rising inflation traditionally erodes the value of bonds and cash. As interest rates move north, the appeal of those bonds offering the current low rates will fall and in turn so will the price.

As a result, it may be worth assessing whether your asset allocation to bonds is still appropriate for your circumstance and long-term goals, as floating rate bonds or inflation linked bonds may be more appropriate.

Quality stocks still attractive

The reduced appeal of longer-term bonds traditionally increases the appeal of equities as a better hedge against rising inflation.

Also, with a once-feared double dip recession now looking unlikely in North America, Europe, China and Japan, many companies are expected to enjoy continued growth in what is still a low interest rate environment.

While sharemarket returns may be more modest than in recent times, many companies still offer potential. Quality companies offering a high return on earnings, a lowly geared balance sheet and the ability to set prices, will continue to provide attractive investment options.

Inflation and interest rates

The challenge with a higher inflation rate is that it could outpace any growth in interest rates, leaving those weighted towards long-term fixed interest investments in a situation where their money is being eroded over time. As the global economy begins to shift gears, now may be the time to consider reviewing your portfolio to reflect the changing conditions.

If you would like to know more about whether your current investment mix is appropriate for your circumstances and the times, please give us a call to discuss.

Christmas is a time when we come together to celebrate with our family and friends. And, for those who haven’t been able to see friends and family due to border closures, it will be an even more joyous occasion this year.

Gift-giving is typically a big part of celebrating Christmas and provides a great opportunity to reach out to support those who have done it tough this year.

Charity is not just about money

There are so many ways you can give back to the community. It’s not always about making a monetary contribution – giving your time is just as valuable. Volunteering at the local soup kitchen on Christmas Day or helping at your local Foodbank or food rescue service like OzHarvest can be just as valuable. Donating clothes, blankets or any other household items that will help those less fortunate or vulnerable is always welcome, especially at shelters for both men and women.

In recent years, gift bags or hampers are becoming increasingly popular too. It’s as simple as buying non-perishable food items or toiletries from the supermarket and creating a food hamper or gift bag.

Every Christmas, Kmart has the Wishing Tree Appeal whereby you can purchase a gift for a child and leave it under the tree in the store.

If you’re unable to donate cash or volunteer your time, a blood donation at the Australian Red Cross is another option. They are always in desperate need of donors. And when you donate, you’ll not only get to enjoy a little snack afterward, but you’ll receive a text message a few days later telling you exactly where your donation went.

Donating regularly

During the pandemic, there was a significant decrease in the number of donations made to charities across the country, and unfortunately, the amount of money we donated declined as well. People were unsure about job security played a major part in this decline.

Now we are coming out the other side of the pandemic economically, reports show donations are rebounding and are on the rise again. Those who donate, do so regularly and they usually have specific charities that they donate to. This may be due to personal circumstances or to support something they are passionate about.

If you’re considering donating to a charity this Christmas, you may want to do a little research first to find out exactly how your money is being distributed. How much goes directly to those in need and how much is being spent on admin and running costs. This is an important factor for many and may impact your decision in terms of which charity you choose to support.

The positive effects of donating or volunteering

Donating – whether it’s our time or money – will always make us feel good, but it shouldn’t be the key driver. Think about the impact your donation or time will have on those who are on the receiving end.

Donating will not only have a positive effect on the recipient, but it can also be beneficial to your children. You can teach them from a young age that giving back to the community can be very rewarding for many reasons.

Maximising your donation

There are so many charities to choose from in Australia, but it’s also worth considering international organisations as well. You may prefer to donate locally, but if you decide to choose an international charity, your dollar will more than likely go a lot further. Especially in developing countries, where they may need clean water, medical supplies, or even infrastructure to build schools for young children.

Remember, if you donate $2 or more, you may also be able to make a claim on your donation at tax time.

So, whether you’re volunteering at a homeless shelter or soup kitchen or giving a monetary donation – helping others who are less fortunate could be the best gift of all this Christmas.