Living and housing options in retirement
Do you know what is the average age people decide to retire? Before I say it, please have a guess? 55, 60, 65 or later?
Well, surprisingly the average retirement age in Australia is 55.4. I was quite astonished discovering that, as the person who is 55 today in 2023, must have been born in 1968.
Therefore, if this is you:
- your preservation age for superannuation is the age of 60, therefore technically you have no access to superannuation for the next 5 years, till you reach age of 60
- your Age Pension age is 67 (for now), therefore you are 12 years away from any Age Pension eligibility.
What that means is that for at least the next 12 years you have to support yourself using your own savings.
If you are struggling financially you could be eligible for a Job Seeker, but we are talking about retirement, so I am guessing if you decide to retire at 55 you want to have a better lifestyle then the income of Job Seeker can provide.
So whether you retire at the age of 55, 60 or later, the point of my previous week’s article is that you have to be prepared for a very long retirement. And you have to make sure that your money last just as long, therefore correct planning is essential.
And today as a continuation of the longevity and income needs topic, we are talking about different living and housing options available to retirees that maybe you have not considered but could improve your overall financial position, your income or your lifestyle.
From the perspective of money, if you believe that once you retire, you start your retirement income stream such as Account Based Pension, if you think that you are set for the rest of your life and you don’t have to think about planning your finances any longer, well….you are very mistaken.
What’s worse, you can introduce more harm then good to the financial longevity of your savings by doing so.
If you are going to live in retirement for almost 30 years, obviously things will change as you get older. What I mean by that is:
- your income needs change
- your lifestyle needs change
- your living arrangement changes
- your health changes
- your legal needs and mental capacity changes
And your money needs to support you every step of the way, which is not an easy task.
This is why the financial advice support is essential not only to start the process at commencement of your retirement for the first years of enjoyable filled with excitement days of travel and fun with family members and friends.
What is even more important is to adjust your planning as you get older to accommodate for all other items I listed before.
This is why retirement planning is not static and adjustments need to be made as your life changes, with major reviews at the time when you decide to change your home arrangement, when your health starts deteriorating or you require care and assistance.
Today is an overview of living and housing choices available to retirees in Australia and slowly step by step, we will be discussing each option in more details.
So what are your options when it comes to your living arrangement:
- House or apartment – you can own it or rent it, but this is your independent living arrangement. Whether renting or owning the home is a better financial choice is different for each person and will provide a completely different asset and income outcome for every person. So get a good advice.
- Granny flat arrangement – this is not your basic living in a tiny home set for you in your kids backyard. Granny flat is a financial arrangement allowing you as a retiree to live in most cases with your children at their place. With their commitment to provide you with living and care assistance for the rest of your life. There are very specific and complex rules. Impact on Age Pension will depend on the size of the contribution made, there are legal consequences as well, so please make sure you get the full financial planning advice before you jump into the transaction and then it could be too late to make changes.
- Retirement villages – approximately 20% of Australians choose the option to move to retirement villages, which can be a great option as a lifestyle change, access to a community, participating in different activities.
Often people move in after selling their home and downsizing, which can free up some cash to provide additional retirement income. Contracts for retirement villages can be very complex, there are number of payment options such as: upfront payments, ongoing payments or differed payments, with each having a different impact on your cashflow, value of your assets as well as impact on Age Pension, so again, get advice before you sign your contract and spend the money. - Land Lease community – this is a growing trend. Under the land lease agreement, you buy your home and lease the land for 90 years under a Residential Site Agreement. Rules are different to those of Retirement Village, therefore please get advice first before agreeing to the contract.
As the number of retirees increases with each year, and additionally we tend to live much longer than our parents and grandparents, as we age most people prefer to stay in their own home.
This is also what the government prefers, as the cost of care increases dramatically with age when we start requiring ongoing care and assistance. For those reasons, we have number of support care types that you can access:
- Commonwealth Home Support Programme,
- Home Care Packages
- DVA Home + community Care
- and obviously you can organise your own Private care, if you can afford it.
If you want to know your likely life expectancy, just view that article: “How long will you need your income in retirement”
But if your health deteriorates and you are deemed not to be able to continue your independent home living, then the choice is:
- Residential Aged Care – unfortunately this area is very complex, with incredible number of financial choices with each providing different Age Pension outcome but also different impact on Aged Care fees, therefore please consider getting full advice before you decide on the agreement for your partner or your parent.
As you can see there are number of choices for your retirement living, with each providing you with a different lifestyle, different costing, different cashflow and most certainly different Age Pension outcome and how quickly you will spend your money, so please do not accept the basic advice to start an income stream and that’s it, you are done.
You have to explore which option provides you with the life you want and then calculate your affordability not just to set it up, but for years to come.
But if you need an advice and assistance to set it all up, just contact our office to organise a consultation with me.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
