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More Australians are unlocking home equity to fund retirement

A growing number of Australians are downsizing their home to fund their retirement. Here's the latest data from the ATO on use of the downsizer measure.

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Vanguard’s recently released How Australia Retires study found that Australians with the highest confidence about their future retirement tend to take the most purposeful action to prepare.

For some Australians that purposeful action to prepare may include selling their principal place of residence at some point with the intention of freeing up extra cash to use during retirement.

The former Turnbull government moved to join the dots between downsizing and retirement five years ago when it commenced the “downsizer measure” from the start of 2018-19.

The downsizer measure enables eligible Australians to sell their home and then deposit up to $300,000 from the proceeds directly into their superannuation account. The measure also enables eligible couples to potentially deposit up to $600,000 from their home sale proceeds into their respective super accounts – $300,000 each.

According to data provided by the Australian Tax Office (ATO), over the period from 1 July 2018 to 30 April 2023 around 58,000 individuals have made downsizer contributions to their super to the value of $14.5 billion.

That equates to an average super contribution size of $250,000 per person from the downsizer measure.

Downsizer amounts are treated separately to standard non-concessional (after tax) super contributions, which allow eligible individuals to make contributions up to $110,000 each financial year or up to $330,000 up-front covering three years.

Downsizing in Australia

Australia’s rules around downsizing and super contributions are stringent.

Initially only available to homeowners aged 65 and over, the minimum eligibility age for the downsizer measure was lowered to 60 on 1 July 2022, and then again to age 55 from 1 January this year.

But age is only one of the many criteria that needs to be met to participate in the downsizer measure.

The ATO, which administers the measure, has an extensive list of eligibility criteria (and exclusions) on its website. They include a requirement that a home must have been owned for 10 years or more prior to selling, with ownership calculated from the date of settlement when it was purchased.

The key advantage of making a downsizer contribution into super is that any income earned on that money after age 60 is tax-free in pension phase.

In the retirement context, downsizing doesn’t always involve individuals shifting from a larger dwelling to a smaller one.

Downsizing as a strategy is about extricating equity, primarily for retirement purposes, which may also involve selling a home in a more expensive area and buying one in a less expensive area.

Downsizing in the U.S.

Of course, downsizing for retirement income purposes is not just an Australian phenomenon.

New research from Vanguard in the U.S. examining the strategy of unlocking home equity for retirement purposes has found that among Americans who retire and relocate, about 60% aged 60 and over move to somewhere less expensive.

They typically unlock about US$100,000 of equity from a home they may have purchased decades earlier.

Vanguard researchers analysed millions of migration records from the U.S. Census Bureau’s American Community Survey and housing price data from the Federal Housing Finance Agency to determine patterns of relocation around the time of retirement and throughout people’s lives.

Interestingly, they found sharp regional differences in how much value can be extracted from a home when a homeowner relocates upon retirement.

While homeowners originating from most U.S. coastal states have the potential to cash out a significant sum, Vanguard found those from the U.S. mid-west and south (with lower median property values) may need to inject principal or take out a mortgage to purchase an average-priced home in the new location.

This home price differential trend is likely to be similar across different housing markets in Australia. For example, there is a large gap between the median property prices in higher-cost capital cities such as Sydney and Melbourne and lower-cost capital cities, as well as across regional areas.

How much equity value can be extracted from a home for retirement income purposes ultimately comes down to prevailing property prices in the selling location, and prevailing prices in the buying location.

Implications for retirement readiness

Vanguard’s U.S. researchers found that while it’s well-known that home equity represents a significant source of wealth for many American households, how to use it has been less clear in the context of retirement.

Unlocking home equity by relocating to a less expensive housing market can provide a significant source of retirement funding.

“Recent records suggest that this strategy could be thoughtfully deployed by 25% of all U.S. retirees in the next 10 years, potentially significantly improving their retirement readiness,” the Vanguard researchers noted.

Australia’s downsizer measure effectively opened the door for many Australians to stoke their super balance (either before retiring or after retirement).

People considering making a home downsizer contribution into super – especially those already receiving a partial or full government Age Pension – should do proper due diligence.

Because the Age Pension is calculated on the value of all assets outside of the family home, including the amounts held in a super accumulation or pension account, a large cash injection from home proceeds may result in a breach of assets test rules.

There is a two-year asset test exemption for principal home sale proceeds for people intending to use the proceeds to buy another home. In addition, deemed income (for pension calculation purposes under the income test) on the exempt proceeds is calculated using only a 0.25% deeming rate.

It’s important to seek out professional financial advice, especially with respect to social security means testing.

 

 

By Tony Kaye, Senior Personal Finance Writer
June 2023
vanguard.com.au

 

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Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.

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During one’s working life there is always an income to make ends meet when raising children, paying off a mortgage, etc.

Retirement planning is about the lifestyle you will have after you stop work and receiving employment income.  Planning focuses on issues such as how much superannuation is enough, taking a super pension, claiming the Age Pension, making superannuation contributions while receiving a pension from a super fund, estate planning and looking after your family.

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The first step is to create a plan. At Wybenga Financial we take great care in getting to know our clients and their future goals and objectives. We combine our knowledge of your personal goals together with an analysis of your current situation, to create a detailed, personalised plan that will help you meet your objectives. This plan will become your road map which outlines how we are going to meet your goals, whilst aligning all investment decisions to your specific risk tolerance.

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Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire.  Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).

For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.

It is always best to start saving and planning for your retirement as early as you can. 

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Self Managed Super Funds

Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.

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Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.

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Tess Uncle

B.Sc, M.Com, CA, DipFP

Tess has over 22-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.

As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.

Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2004 – Graduated Masters of Commerce from the University of New South Wales
  • 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2007 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

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Adam Roberts

B.Bus, B.Sc, CA, DipFP

Adam has over 18-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.

Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.

Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2005 – Graduated Bachelor of Science from the University of Western Sydney
  • 2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2007 – Graduated Bachelor of Business from the University of Western Sydney
  • 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2010 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

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What is an Advisory Cadetship?
An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.

How does it work?
Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.

The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.

We take the work life balance very seriously at Wybenga Financial and our cadets are encouraged to have a fulfilling life outside the office. A typical day will have you arriving at the office at around 8.30am with most days concluding at 5.30pm.

What are the benefits of an Advisory Cadetship with Wybenga Financial?
Our cadets benefit from the following:

  • Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
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  • Mentoring – cadets are paired with a senior staff member who oversees their progress and training both at work and with their studies
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What happens when I complete my degree?
The completion of your degree is the first step of what we hope to be a long and successful career with us. The next step is the commencement of a Diploma of Financial Planning followed by completing the requirements to become a Certified Financial Planner (CFP).

There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.

Who should apply?
Current Year 12 students or first/second year University Students who:

  • want to commence their career in financial advisory;
  • are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
  • want to gain valuable hands-on experience while completing their qualifications;
  • are looking for a friendly working environment;
  • are team players who display initiative;
  • have a commitment to self-development;
  • possess excellent personal presentation and communication skills; and
  • are motivated and mature minded.

How do I apply for an Advisory Cadetship?
To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.

Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).

What if I have more questions?
For further information about our Cadetship program, please send your enquiry to .