Currently, one of the hot topics in Canberra is the question about what limit the old age pension should be. Is it too low? Should it be raised? How much is needed to live on?
Underlying these short term questions is the more fundamental issue of planning for your retirement in a way which minimizes your dependency on government welfare.
Studies show clearly that those people who have attained home ownership during the course of their working life are in a much better position to live comfortably in retirement. Not only can home owners draw against the equity in their house, but they don't have to pay rent. Those living on a modest pension and paying 30 per cent or more of it in rent can find life a struggle.
Around 70 per cent of the population are home owners, with half of these owning their homes outright and the other half paying off a loan. The degree of equity depends on the size of your mortgage; if you have no mortgage then you enjoy 100 per cent equity. The greater the equity in your home the greater the amount of money that is available to you for further investing or personal expenditure.
A home equity loan is the most common way to access these funds, and most financial institutions will allow you to borrow a significant proportion of the equity in your home. This might be used to purchase investment properties for example, thus utilizing rental income to help repay the loan. Where this happens, and with many other financial strategies, the costs involved may be used to reduce taxable income.
There is also a growing interest among some retirees who use the extra funds to top up existing retirement funds such as the pension or superannuation accounts.
Another way of exploiting the equity in your home is to sell off part of your property, where this is practical and possible. This has been a common practice among farmers and is not uncommon in the residential real estate market where properties are situated on large blocks and can be divided for the construction of new homes.
Downsizing to smaller and less expensive housing is another way of capitalizing on accumulated equity in housing. There are generally two groups of people who downsize; older citizens who no longer require large family homes, and younger people who might downsize to free up funds or meet costs associated with a growing family.
High levels of equity in housing and a more comfortable retirement are the long term rewards that come from owning your own home. However, tapping in to this wealth should be done carefully after seeking competent financial advice.
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