Five reasons owning your own home matters when you’re a pensioner.
1. Home is where the wealth is.
To maximize pension income in retirement it’s essential to own your home. Even if you have rented right up until you retired, the best place you can put your savings is into your home. It gives more than security of tenure, which is essential when you don’t have a salary to show a potential new landlord, it also has very favourable tax treatment and is treated extremely generously when determining pension payments.
As far as pension eligibility goes, the government effectively calculates a home as being worth about $150,000 – that’s the difference in the amount of assessable assets that a single renter can have and get a full pension and what a homeowner can have.
That means if you are lucky enough to own a home in Sydney, where the average price is about $1 million, you can get a full pension of $33,915 with home and assets worth about $1,209,000. Even in Hobart, the cheapest capital city, the average house price means you could have about $600,000 in home and assets and still get a full pension. A renter in both cities can have assets of just $360,500 before the pension starts getting cut.
3. Rent Reduction.
Rent adds up and it keeps rising. The average rent for an 85 square metre home in Sydney ranges from $2,000 to $3,500 a month. Over the year that’s $24,000 to $42,000. The full pension is $33,915. That doesn’t leave a lot of money left for living, even at the bottom end. Given that landlords have the capacity to raise rent every year, that squeeze won’t go away.
4. Switch to Reverse.
Home ownership also gives the capacity to take out a reverse mortgage. That’s when a lender will pay you a monthly amount against the value of your home. The even better news is that, in most cases. Reverse mortgage payments aren’t added to income when determining pension eligibility.
5. Inflation Protection
Self-evident really – home prices in growing areas generally rise. That means the longer you keep your home in retirement, the bigger that value will be if you need access to more cash later in life – to pay a nursing home bond for example.