Page 1


Retirement Affordability Index

Home truths

How to cut the cost of owning a home – and cash in if you need to boost your income

Challenger CarePlus

Helping you and your family with the transition to aged care Whether it’s for yourself or a loved one, the move into aged care can be complex and emotional. But with the right advice, a financial adviser can help guide you through some of the complex financial elements so that you can make an informed decision. Challenger CarePlus (CarePlus) is a tailored investment solution designed to provide guaranteed regular payments for the life of the aged care recipient to help manage aged care costs and living expenses.

CarePlus can provide the aged care recipient with the comfort of knowing that they will receive regular payments for their lifetime, regardless of how long they live or how investment markets perform. Ask your financial adviser about CarePlus, or visit to find out more.

13 35 66

The information in this document is current as at 4 March 2019 and is issued by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger), the issuer of Challenger CarePlus. This information has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain and consider the Challenger CarePlus Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the product. A copy of the PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at All references to guaranteed payments refer to the payments Challenger promises to pay under the relevant policy documents. Neither the Challenger group of companies nor any company within the Challenger group guarantees the performance of Challenger’s obligations or assumes any obligations in respect of products issued by or guarantees given by Challenger.


Published by: Indigo Arch Pty Ltd Publisher: Kaye Fallick Editor: Janelle Ward Copy Editor: Haya Husseini Writers: Louise Biti, Kaye Fallick, Matt Grudnoff, Glenn Smith-Cameron, Janelle Ward, Emmett Wilkinson Designer: Word-of-Mouth Creative Email: Web: Phone: 61 3 9885 4935

All rights reserved, no parts of this book may be printed, reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, without the permission in writing from the publisher, with the exception of short extractions for review purposes. IMPORTANT DISCLAIMER No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is distributed on the terms and understanding that (1) the publisher, authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, financial, professional or other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a subscriber or reader of this publication or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no publisher, author, consultant or editor shall have any responsibility for any act of omission of any author, consultant or editor. Copyright Indigo Arch Pty Ltd 2019

A snapshot of older Australia What YourLifeChoices’ research told us about you: your challenges, fears and aims


More than food for thought How the latest cost-of-living increases affected the tribes


Your budget planner We’ve done the hard work so you can track where your money is going


Household bills that hurt The Australia Institute senior economist Matt Grudnoff reveals the costs of home ownership


Preparing for the aged-care conversation What you need to know before speaking with your financial adviser


Cashing in on the family home Financial planner Emmett Wilkinson tells how you can turn property into income


Pension Loans Scheme explained The scheme will be expanded from 1 July. Here’s what you need to know


Money-saving solutions for renters Glenn Smith-Cameron details the strategies on offer for pensioners who rent


Cost-proof your home How you can keep those big household bills to a minimum


So you want to age at home? Aged Care Steps director Louise Biti explains the help available to keep you at home


Government update Key changes to retirement income


7 8 12 15 16

YourLifeChoices Retirement Affordability Index™ March 2019


Home is where the heart is The majority of older Australians own their homes and have no intention of leaving. But how do we turn that asset into income? Janelle Ward presents an overview of older Australia, the problems and the ‘where to now’.


bout 5.5 million baby boomers – people born between 1946 and 1964 – have either reached retirement age or are closing fast.

What do we know about these older Australians – their financial and personal situations, their fears, their aims? YourLifeChoices’ 2019 Insights Survey – the eighth Insights survey conducted by Australia’s longest established retirement website – reveals much. Of the 7760 respondents, most (54.5 per cent) were aged between 65 and 74. Of all respondents, 61.58 per cent were fully retired, 15.31 per cent worked part-time and 10.58 per cent worked full-time. Of those not yet retired, a surprising 23.97 per cent said they were planning to retire some time after they turned 70, 13.39 per cent at 70 and 15.51 per cent at 65. The overwhelming reasons for retiring were health (43.64 per cent) followed by the availability of work (24.27 per cent). Almost one-third of respondents were on a full Age Pension (32.19 per cent), with almost another third on a part-Age Pension (30.64 per cent), while 26.75 per cent were self-funded retirees. A significant 72.23 per cent owned their home outright, another 14.56 per cent owned their home with a mortgage, while 13.21 per cent were renters. Among the homeowners, there were no plans to change anything soon. When asked if they were planning to sell in the next two years, 90.81 per cent said no. Were they planning to downsize? Another resounding no (83.87 per cent). However, for all those older Australians with the bulk of their wealth locked in real estate, a key concern was maintaining their current lifestyle as they age. In YourLifeChoices’ 2019 Ensuring Financial Security in Retirement Survey, almost one-third (33.2 per cent of respondents) admitted they were somewhat concerned and 11.77 per cent said they were very concerned about their ability to continue to finance their lifestyle. 4

In the same survey, YourLifeChoices respondents were asked about the importance of aged care planning. While 62 per cent said it was either important or very important, almost half said they had no idea how much they would need to contribute to aged care. Which brings us to the importance of the family home – the focus of this edition of the Retirement Affordability Index™ – on both financial and lifestyle fronts. In addition to the monetary value of this asset, a significant percentage of older Australians say they want to age at home and – as evidenced by our Insights survey – have no plans to move any time soon. Many older Australians have made superannuation payments only since it became compulsory in 1992, yet they have also ridden a wave of growth in property values. Their home is their castle but they also need a reliable income stream. Credit Suisse's Global Wealth Report puts the median net wealth of Australians at $271,000 per adult – the highest in the world – but it says that more than a third of our population aged 65-plus are living in relative income poverty in retirement – the second highest rate in the OECD. Where to turn? In this edition of YourLifeChoices’ Retirement Affordability Index™, The Australia Institute senior economist Matt Grudnoff charts the areas where household costs are hurting now and where they are likely to increase. YourLifeChoices’ experts explore the pros and cons of downsizing, reverse mortgages, granny flats, developing the block, Airbnb-type scenarios for the home and, for renters, the Government’s Rent Assistance payments, government housing and such strategies as living in caravans, relocatable homes and even boats. We explore the government and community services available for tasks such as caring for your garden and cleaning the oven. We explain the simple, budget-conscious ways in which you can cost-proof your home and control everything, from energy and water bills to home renovations.

YourLifeChoices Retirement Affordability Index™ March 2019

What you told us YourLifeChoices’ Insights Survey has been conducted annually since 2012. The 2019 survey attracted 7760 respondents. Here’s what you revealed about your retirement savings and home. What is the approximate value of your superannuation and other investments, excluding the family home? Up to $99,000: 26% $100,000-$499,999: 27.37% $500,000-$999,999: 16.19% More than $1 million: 7.69% Rather not say: 22.42% How will you/do you fund your retirement? Fully self funded: 26.75% Part Age Pension: 30.64% Full Age Pension: 32.19% Other pension: 3.74% Other: 6.68% Are you planning on downsizing? Yes: 16.13% No: 83.87%

How much income per year (after tax) do you need, or think you need, for a reasonable standard of living? Up to $39,999: 31.21% $40,000-$59,999: 44.38% $60,000-$79,999: 18.54% $80,000-$99,999: 4.47% More than $1 million: 1.52% Do you own your home? Fully: 72.23% With a mortgage: 14.56% Renting: 13.21% Are you planning on selling your home within the next 24 months? Yes: 9.19% No: 90.81%

The tribes explained Affluent Couples and Singles • Homeowners with private income • Estimated annual expenditure $75,421 and $43,071 respectively YourLifeChoices disclaimer

Constrained Couples and Singles • Homeowners on full or part Age Pension • Estimated annual expenditure $43,323 and $24,001 respectively

Cash-Strapped Couples and Singles • Renters on a full Age Pension • Estimated annual expenditure $36,559 and $22,966 respectively

YourLifeChoices Retirement Affordability Index™ March 2019


Rising food costs exert most pressure The Consumer Price Index (CPI) rose 0.5 per cent in the December quarter of 2018. There were significant price drops in the telecommunications and transport categories. Telecommunications saw the biggest fall (-1.3 per cent) while the smaller drop in transport costs (-0.7 per cent) was driven by cheaper automotive fuel as petrol prices fell from recent highs. The big price increases were in alcohol and tobacco, recreation and food. The extra cost in the alcohol and tobacco category was driven by additional tax on tobacco. Recreation price rises were driven by increases in the cost of domestic holiday accommodation (+6.2 per cent). The food and non-alcoholic beverages category was affected by price rises for fruit (+5 per cent) due to more expensive lemons, apples, bananas and strawberries. Also, meat costs continued to rise as a result of the drought.

Weekly expenditure for retirees aged 54+ Expenditure items Housing As a percentage of expenditure Domestic fuel & power As a percentage of expenditure Food & non-alcoholic beverages As a percentage of expenditure Alcoholic beverages & tobacco products As a percentage of expenditure Clothing and footwear As a percentage of expenditure Household furnishings & equipment As a percentage of expenditure Household services & operation As a percentage of expenditure Medical & health care As a percentage of expenditure Transport As a percentage of expenditure Communication As a percentage of expenditure Recreation As a percentage of expenditure Education As a percentage of expenditure Personal care As a percentage of expenditure Miscellaneous goods & services As a percentage of expenditure Total weekly expenditure Total monthly expenditure Total annual expenditure 6

Affluent Couples

The quarterly figures affected the tribes differently. Affluent Couples and Constrained Couples experienced the smallest cost-of-living increases at 0.3 per cent each. Affluent Singles experienced a 0.4 per cent increase, primarily due to rises in recreation costs, while a hike in food costs was the main reason for a 0.4 per cent rise for Constrained Singles. Food costs were also the prime driver of increases for Cash-Strapped Couples and Singles (both at 0.5 per cent). Overall, food costs had the biggest impact with falls in the price of transport offsetting rises for the Affluent and Constrained tribes. Housing is still a pressure point for Cash-Strapped tribes, but much less so for Affluent and Constrained tribes. In the past 12 months, the Cash-Strapped tribes and Constrained Couples were most affected by cost-of-living increases, mainly due to food and petrol price rises. The Australia Institute chief economist, Matt Grudnoff

Constrained Couples

Couple Couple homeowners homeowners with private on Age income Pension $181.87 $107.49 13% 13% $45.52 $34.19 3% 4% $236.96 $166.89 16% 20% $53.24 $26.95 4% 3% $30.62 $17.38 2% 2% $73.55 $31.91 5% 4% $40.94 $28.97 3% 3% $142.32 $101.44 10% 12% $193.05 $125.32 13% 15% $36.48 $25.85 3% 3% $297.35 $100.98 20% 12% $0.58 $0.21 0% 0% $29.12 $17.67 2% 2% $88.80 $47.89 6% 6% $1,450.42 $833.15 +$4.90* +$2.69* $6,285.15 $3,610.31 +$21.23* +$11.65* $75,421.77 $43,323.70 +$254.77* +$139.74*

YourLifeChoices Retirement Affordability Index™ March 2019

CashStrapped Couples Couple who rent on Age Pension $203.58 29% $36.09 5% $150.91 21% $43.65 6% $9.19 1% $19.41 3% $15.65 2% $35.12 5% $59.59 9% $27.98 4% $65.66 9% $0 0% $12.28 2% $23.95 3% $703.06 +$3.35* $3,046.59 +$14.50* $36,559.10 +$174.00*

Affluent Singles

Constrained Singles

CashStrapped Singles

Single Single Single who homeowner homeowner rents on Age with private on Age Pension income Pension $122.20 $90.19 $160.38 15% 20% 36% $32.92 $29.47 $25.01 4% 6% 6% $119.05 $83.68 $74.99 14% 18% 17% $26.63 $15.25 $20.91 3% 3% 5% $20.37 $8.83 $7.29 2% 2% 2% $40.25 $18.69 $14.91 5% 4% 3% $36.94 $20.88 $11.09 4% 5% 3% $81.72 $36.19 $21.41 10% 8% 5% $102.27 $52.15 $35.17 12% 11% 8% $35.30 $18.23 $14.22 4% 4% 3% $138.49 $52.10 $31.44 17% 11% 7% $0.13 $0.12 $0.01 0% 0% 0% $18.14 $9.57 $8.48 2% 2% 2% $53.90 $26.23 $16.34 7% 6% 4% $828.30 $461.57 $441.66 +$2.92* +$1.85* +$2.25* $3,589.31 $2,000.14 $1,913.88 +$12.65* +$8.02* +$9.79* $43,071.72 $24,001.73 $22,966.51 +$151.80* +$96.25* +$117.40*

*Percentage and dollar changes compared with September figures

How does your spending compare? Expenditure items

Affluent Couples

Constrained Couples

CashStrapped Couples

Affluent Singles

Constrained Singles

Single Single Couple Couple Couple who homeowner homeowner homeowners homeowners rent on Age with private on Age with private on Age Pension income Pension income Pension

CashStrapped Singles Single who rents on Age Pension

Housing Rent, interest, home repairs and maintenance & body corporate fees As percentage of expenditure Domestic fuel & power Electricity, gas & oil As percentage of expenditure Food & non-alcoholic beverages Includes meals in restaurants As percentage of expenditure Alcoholic beverages & tobacco products Alcohol consumed at licensed premises As percentage of expenditure Clothing and footwear Dry cleaning, repairs & alterations As percentage of expenditure Household furnishings & equipment Outdoor furniture, floor and window coverings, linen and bedding, appliances, glassware, tableware and cutlery, tools & mobile phones As percentage of expenditure Household services & operation Cleaning and garden products, phone charges (including mobile), pest control & home cleaning services As percentage of expenditure Medical & health care Health insurance, doctor and dental fees, medicines and pharmaceutical products, prescriptions & hospital and nursing home charges As percentage of expenditure Transport Purchase, maintenance and insurance of vehicles, fuel & public transport fares As percentage of expenditure Communication Spending on telephone (including fixed line and mobile) Spending in internet services As percentage of expenditure Recreation AV equipment including TVs and pay TV, books, newspapers and magazines, camping and fishing equipment, sports equipment, internet charges, holidays & animal expenses As percentage of expenditure Education Primary and Secondary school fees (including school sport fees) TAFE and University fees (including HELP) Fees to all other private education institutions As percentage of expenditure Personal care Toiletries, cosmetics & hairdressing As percentage of expenditure Miscellaneous goods & services Stationery, watches and jewellery, interest payments on credit cards and all loans (excluding home loans), education, rates and charges on investment properties, accountant and tax fees & cash gifts As percentage of expenditure Total weekly expenditure Total monthly expenditure Total annual expenditure

YourLifeChoices Retirement Affordability Index™ March 2019


Is maintaining a home really costing you more? The Australia Institute senior economist Matt Grudnoff runs the rule over the costs involved in owning a home to find out if they really have become more expensive.


ome prices go up and some prices go down. Some prices make it into the news and public discussion and others sit silently in the background. Electricity and petrol prices are regularly discussed. Everyone has a theory and a villain as to why they seem to be endlessly rising. Other prices are discussed because they don’t go up. Discussion about cheap milk regularly breaks out. Other prices sit quietly in the background. While some might be amazed that milk prices didn’t rise in eight years, spare a thought for manufacturers of clothing and footwear. These products are actually cheaper today than they were in 1998. That’s no increase in about 20 years. And they’re not the only prices to have gone down. Household furnishings and equipment are also lower today than they were about 20 years ago. While we lament every increase in our electricity bill, there are some large price increases that rarely attract a mention. Since 1998, tobacco has gone up in price more than anything else, mainly because of the increase in tax. Tobacco products have increased fivefold in price since 1998, compared to electricity, which has tripled, and the Consumer Price Index (CPI), which has increased by 70 per cent. Of course, increasing tobacco prices is a policy objective designed to cut smoking rates and improve health outcomes.

• current housing costs, which include rents, the cost of building a house as well as rates and other taxes. (Importantly, it does not include mortgage payments, buying existing housing or the land the house is on) • domestic fuel and power, which includes various utilities such as electricity, gas and water • household furnishings and equipment, which include such things as furniture, household textiles, appliances, utensils and tools • household services and operation, which include cleaning and maintenance products as well as household services such as cleaners and gardeners. Together, this new price index will give us an insight into the cost of running a house and how that has changed over time. One way to look at our new category is to compare it with the CPI. The figure below does just that. Starting in June 1998, it plots increases in the CPI with increases in the cost of owning and running a home. Cost of owning and running a home

With so many prices of different products in different categories, it can be difficult to keep up. So we tend to focus our attention on the price of things that are most discussed, such as electricity, petrol and milk. In this article, I focus on the cost of housing – not just the cost of buying a house, but the broader costs of owning a home. To do this, I’m going to construct a new category of prices that I’ll call Broad Housing Costs (BHC). This will include: 8

From 1998 to December 2018, the CPI increased by about 70 per cent while BHC increased by a slightly larger 78 per cent. Between 1998 and 2009, the two costs increased by roughly the same amounts. In late 2009, BHC increased in price faster than the CPI and has stayed above the CPI since then.

YourLifeChoices Retirement Affordability Index™ March 2019

What is driving the small difference between the CPI and BHC can be seen in the next figure, which breaks up BHC into its four categories. It shows that household furnishings and equipment as well as household services and operation are running below CPI and current housing costs and domestic fuel and power are running above CPI. The net result is BHC is growing at slightly faster than CPI. Broad Housing Costs

The increase in domestic fuel and power after 2008 is striking. This is in large part driven by electricity and there are three phases to the price increase.

The most recent increase in electricity prices has come about because of investment uncertainty caused by the lack of genuine action on climate change.

The next figure just looks at electricity and I have highlighted (in red) the period when the carbon price was put in place in 2012.

The other interesting increase has been in current housing costs. These have increased faster than the CPI, but given the huge increase in house prices over the past 15 years, it might surprise people that they haven’t gone up faster.

Electricity Costs

In relation to current housing costs, the Australian Bureau of Statistics (ABS) measures consumer goods and specifically excludes investments and second-hand goods. This means that the land the house sits on is excluded, because it’s an investment. That is, it’s not a ‘good’ that is used up in consumption, but is instead expected to rise in value over time. The sales of houses that aren’t brand new are also excluded. We can see that electricity prices were on the rise long before the carbon price came in. This was driven by poor regulations that allowed for what became known as the ‘gold plating’ of the network. This was where electricity distribution and transmission companies were widely criticised as having over-engineered the network in order to increase prices and earn bigger profits. The introduction of the carbon price continues the trend of increasing prices. Its repeal decreased prices slightly, but it highlights that even without the carbon price, electricity prices would have continued to rise. YourLifeChoices disclaimer

Since the house itself should generally go down in price as it gets older, increases in house prices must be because of increases in land prices. This means house price increases are largely excluded from the CPI. So the running of a home has been increasing faster than the CPI since about 2007 and this is largely due to the cost of building new homes, rents and the increasing price of utilities. Bipartisan effective climate change policy in the energy sector would probably do more than anything else to slow the increased costs of running a home. * What can you do to contain your household costs? See ‘Cost-proof your home’ on page 16.

YourLifeChoices Retirement Affordability Index™ March 2019


Sponsored message from Challenger

Preparing for the aged care conversation with your adviser This handy guide provides the information you will need, and where you’ll find it, when speaking with your financial adviser about aged care.


lanning for residential aged care is all too often at the bottom of our to-do lists.

When the time comes to give it more careful consideration, many of us may be overwhelmed by the procedural requirements, and some of us may not be capable of having a conversation about decisions being made due to ill-health.


Finances Your adviser will need to understand your income and assets to help determine the types of fees/how much you could be asked to contribute towards your aged care costs Q. Are you/your loved one receiving any income support payments, for example from Centrelink or the Department of Veterans’ Affairs (DVA)?

Input from government departments, healthcare professionals and financial institutions is likely to be required. But where to start? Your financial adviser can help. Whether the first conversation with an adviser happens before, during or even after making the transition to aged care, he or she can help ensure you or your loved one’s needs – both financial and emotional – are being fully considered. Here are the five key areas that need to be taken into account. Remember that if you are gathering information on behalf of a loved one, you are likely to need their permission first.

Any such payments need to be considered when determining how much you/ your loved one will be required When transitioning into to contribute to aged care costs. There may be records readily residential aged care, available, but if not, contact the what you or your loved relevant authority.

one wishes to do with the family home can make a big difference to cash flow.


Aged care needs Q. Are you/your loved one aware of the government-funded aged care services that are available?

There are different costs associated with each service and your financial adviser can help you understand what these are. 10

Financial statements can help identify the value of holdings. Contact with relevant financial institutions and the person’s accountant can also assist.


The Government’s website,, is a great place to start. It has information about the different government–funded services that can be accessed – such as the Commonwealth Home Support Program, a home-care package or residential aged care. An Aged Care Assessment Team (ACAT) or, in Victoria, the Aged Care Assessment Service (ACAS), can determine a person’s eligibility for these subsidised services. You can request a free assessment by visiting the Government’s website.

Q. What are your/your loved one’s assets, income and/or liabilities? This can include savings, shares, accountbased pensions, annuities, debts and loans.

The family home When transitioning into residential aged care, what you or your loved one wishes to do with the family home can make a big difference to his or her cash flow. Q. Is anyone currently living with you/your loved one? Having someone continue living in the former home after you/your loved one transitions into residential aged care can affect your aged care fees. If the person residing in the former home is someone other than a spouse, the financial adviser will need additional information in order to accurately determine your/your loved one’s aged care fees. This can include information on whether the person was caring for you/your loved one, how long the

YourLifeChoices Retirement Affordability Index™ March 2019

person has lived in the former home and whether that person qualifies for any income support payments from Centrelink/DVA. Q. Could you/your loved one rent out the former home? Is the home in a rentable state? If not, how much would it cost to get it to a rentable state? Renting the former home after entering aged care can provide additional cash flow. However, it can have an impact on social security payments such as the Age/Service Pension as well as aged care fees. A financial adviser should understand the family’s view around renting the former home and can assist with developing different strategies to assist you/your loved one with funding the aged care services required.


The aged care facility If you or your loved one have visited aged care facilities before meeting with a financial adviser, or have already transitioned into care, details about the facility will be required to develop a funding strategy. Q. If you/your loved one have chosen a facility, or already reside in one, what is the agreed accommodation price or current costs? Determining aged care facility costs is necessary to determine cash flow requirements. If you/your loved one has already transitioned into residential aged care, refer to the accommodation agreement, monthly invoices and/or contact the aged care facility. If transitioning into care, visit the facility’s website or go to the Government website,, to view advertised prices and service details.

Q. Do you/your loved one have a preference regarding payment of these costs? Facilities provide a choice in relation to payment of fees. With accommodation fees, there is a choice to pay a lump sum, a daily amount or a combination of both. The funding strategy developed by an adviser will also be influenced by your/your loved one’s preference on whether to retain or sell down certain assets.


Other expenses Additional lifestyle expenses can be included in a financial adviser’s funding strategy. These could include haircuts, day trips or specialist medical appointments. Q. What additional expenses require ongoing funding? Bank statements can help determine current spending requirements. The facility can also provide information on other optional services and their costs. Q. Are there any ongoing health expenses that require funding? Ongoing specialist medical treatments, medications, consultation fees and/or private health fund costs should also be incorporated into the adviser’s strategies. The family doctor or specialist medical professionals can help with details of potential ongoing health expenses. This could include approximate costs for future operations and so on. To find out more about your aged care options, talk to your financial adviser, visit agedcare or call Challenger on 13 35 66. DISCLAIMER: The information in this article is general only and has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain and consider the relevant Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the relevant product. A copy of the PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at

YourLifeChoices Retirement Affordability Index™ March 2019


Unlock the family home to boost your retirement income Home ownership has been a boon for many baby boomers, but for those who are asset-rich and cash-poor, what are the options? Emmett Wilkinson has some solutions.


wning your home is, for good reason, a goal of most Australians and for most homeowners it will become their biggest financial asset. Homes can, however, tie up your cash, so what are the options for those who want to use their home to generate extra retirement funds? Let me explain.

test-exempt asset (the principal home) into means tested assets (super when aged over 65), which may substantially reduce age pension entitlements.


The four big banks have now withdrawn from providing new reverse mortgages and the field has been left to the smaller players.

Downsizing is a growing trend driven by lifestyle and financial reasons. But if you are looking to come out with money left over, then you need to ‘think before you shrink’. My widowed neighbour, Val, recently sold her family home of 50 years and bought a twobedroom apartment in a new development close to a major shopping centre around five kilometres further out from the CBD than her previous home. The move left Val with about $400,000 in change and no lawns to mow.

The interest rates and terms will differ slightly with each provider, but common to all reverse mortgages is the fact that you will be borrowing funds that you You only live once and if will most likely not make interest payments on. The interest will having something now compound and the proceeds but giving something of the family home, which the away in the future means loan is secured against, will be reduced by the outstanding a better life in the here borrowed amount and accrued interest when it’s eventually sold. and now, then who are

we to judge?

Do your sums on the selling/ acquisition costs and be aware that if you’re downsizing to a property with a higher land value area (e.g. moving closer to the city or to a beach hot spot), there may not be as much left over as you thought.

Moving to a retirement village is another form of downsizing, but with very different legal and ownership outcomes. It is important that you understand the entry costs, ongoing monthly costs and what you will get back on leaving the village. I strongly recommend you get a solicitor to review the retirement village contract so everyone is on the same page.

Downsizer super contributions Superannuation laws have recently changed to allow homeowners over 65 to contribute up to $300,000 each to their super funds from the sale proceeds of their home when downsizing. Age pensioners need to be aware that by doing this, they are turning a means 12

Reverse mortgages and similar products

There are also products known as home reversion schemes (sometimes called equity release or unlock) where a homeowner agrees to sell a share of the future sale proceeds of his or her home in return for a lump sum now. The lump sum received now will be less than the agreed share of the home’s current value though and it is important that the complex calculations and reasonings used in these contracts are explained and understood. The Government’s Pension Loans Scheme (PLS) is similar to a reverse mortgage in that money is borrowed with interest accruing, which can be paid back when the home is sold. The PLS rate of interest is 5.25 per cent per annum which is lower than the that charged by typical reverse mortgage providers. It is important to note that borrowings under the PLS can only be taken as fortnightly income payments and not as a lump sum. The expansion of the scheme, which starts on 1 July, will make

YourLifeChoices Retirement Affordability Index™ March 2019

such loans available to all self-funded retirees (some were previously excluded) and increase the amounts that can be borrowed. Full rate age pensioners will be able to borrow up to 50 per cent of their annual pension payments and higher amounts will apply for part pensioners and self-funded retirees. To date, the PLS has not been taken up by many people, but it could well become more popular when the new changes take effect as having the Government as lender may allay some people’s concerns about these products. You only live once and if having something now, but giving away something in the future means a better life in the here and now, then who are we to judge? It’s an entirely personal choice.

Granny flats If someone – usually a parent or relative – pays you for the lifetime right to reside in your home or in a self-contained building on your property, then what is termed a ‘granny flat interest’ is created. There are several ways these arrangements can be paid for and there may be age pension implications for the person moving into the granny flat arrangement. It is recommended that legal advice be obtained before creating a granny flat interest so that the relationship and its terms and obligations are documented in writing. It is crucial to document what happens if the granny flat interest ends prematurely.

Developing the block Subdividing your block and selling part of it off might be a possibility for some as might developing the property yourself. YourLifeChoices disclaimer

Selling off part of your block may see you lose control of what is then built in your backyard while undertaking to build a new unit or townhouse on your land will involve legal and taxation considerations as well as the work involved in finding the right designer and builder and then living comfortably through the process. Undertaking a property development of this type, especially if you haven’t done it before, could be a very risky retirement venture, particularly when real estate prices are volatile.

Renting out your home There may be options to generate some extra income by renting out a room in your home or making your home available on a temporary basis via such platforms as Airbnb. Swapping homes with overseas or interstate visitors when arranging holidays can also be a win-win situation in containing expenses. How about renting out your driveway or garage if it’s not fully utilised and you live near a busy station or sporting ground? Websites such as and will advertise your site and you could make $100–$150 extra per month depending on supply and demand. You may have other clever ways to make some extra cash from your home. Tell us about them by emailing or posting a comment on the YourLifeChoices website. * Emmett Wilkinson is a Certified Financial Planner who specialises in superannuation, aged care and Centrelink advice.

YourLifeChoices Retirement Affordability Index™ March 2019


How the Pension Loans Scheme has changed An expansion of the Pension Loans Scheme from 1 July means that all Australians of pension age can draw on the equity in their home. Kaye Fallick explains. What are the rules?

Who will use this scheme?

The Pension Loans Scheme (PLS) has been expanded to include all eligible people of age pension age who have securable real estate owned in Australia.

Currently, around 1.8 million age pensioners own their home, including 1.1 million maximum rate age pensioners and 700,000 part-rate age pensioners.

The amount that can be borrowed, via a fortnightly loan, will increase to 150 per cent of the fortnightly Age Pension. This means that full rate pensioners will be able to increase their annual income by up to $11,912 (singles) or $17,958 (couples) – based on the current rate of the Age Pension – by unlocking the equity in their home.

To date, uptake of the PLS has been minimal – largely because full age pensioners and self-funded retirees are excluded. From July, the Government expects up to 6000 retirees will take up a loan in the first three years.

How much can you borrow? The full details are yet to be revealed, but the Government states that the current PLS actuarially calculated formula, which limits the cumulative amount of loan plus interest that can be borrowed, will continue to apply. While the overall maximum you can receive is 150 per cent of the maximum rate of the Age Pension, your actual limit will depend on your age, how long you intend to receive payments, whether you are single or have a partner, the value of your home and how much Age Pension you receive. The formula is conservative to ensure participants do not borrow more than their home is worth.

How much will this cost you? The current scheme interest rate of 5.25 per cent per annum will apply to existing and new loans. Participants have the flexibility to start or stop receiving payments as their personal circumstances change, and generally repay the loan once the asset (usually the family home) is sold or from their estate. They can repay earlier if they choose.

Will your PLS be taxed or means tested? Income streams from the PLS are non-taxable and generally not means tested. However, if you save PLS payments, rather than spending them, the saved amount could be means tested. 14

Case study: Janet (single age pensioner)* Janet is 70 and has a house valued at $500,000. She receives a full Age Pension of $926.20 per fortnight ($24,081 per year). Under the expanded Pension Loans Scheme, Janet is able to access some of the value in her home. She chooses to receive additional funds of around $11,912 in the first year. Her income increases to $1384.35 per fortnight ($35,993 per year) – 150 per cent of the maximum rate of the Age Pension. The value of the loan funds increases over time in line with the indexation of the pension. Janet continues to receive additional funds through the PLS for 20 years at an interest rate of 5.25 per cent. She passes away at age 90. Her family sells her house for $950,000. The PLS loan owed to the Government is around $600,000, which is paid from the sale of the house. About $350,000 remains in her estate. Over the 20 years, Janet received around $350,000 in additional income. * Supplied by Australian Government, Department of Social Services

YourLifeChoices Retirement Affordability Index™ March 2019

YourLifeChoices disclaimer

Cash-Strapped Tribes, did you know this? Older Australians who rent their home should be aware of these strategies, writes Centrelink expert Glenn Smith-Cameron.


ourLifeChoices’ 2019 Insights Survey found that 13.2 per cent of the 6731 respondents rent their home. If you are one of this group, are you making the most of the benefits that are available to assist you financially? A key concern of YourLifeChoices members is that government benefits and allowances are sometimes not widely known. The following strategies are available to help age pensioners who rent – the Cash-Strapped Tribes.

Rent Assistance The maximum fortnightly Rent Assistance payment for a single is $137.20; for a single who shares, it is $91.47, and for a couple combined, it is $129.20. The amount of Rent Assistance will depend on the fortnightly rental costs. For a single, the maximum will be paid only if the fortnightly rent is at least $302.27; for a single sharer when the rent is at least $241.91 and for a couple combined, when the rent is $366.87.

Government housing

3. People often live together for care and companionship. A student or pensioner might live with another pensioner for free or for reduced board in exchange for such duties as care, companionship and housework.

Granny flat This involves paying for the right to live in a specific home for life. The property must belong to someone else. It is not a description of the type of property.

No Rent Assistance is available for retirees in public housing, but cheaper fixed rent makes this an attractive option. However, the waiting times can be lengthy and you may have no say in where you are allocated a house.

It must be: • all or part of a private residence • your principal home • not owned by you, your partner or a trust or company you control.

Moving to a regional area

The right lasts only for your lifetime and is not part of your estate when you die.

The rents are likely to be cheaper, but careful consideration should be given to the availability of public transport and medical facilities.

Sharing 1. Two people sharing accommodation are able to get a total of $182.94 a fortnight in Rent Assistance when paying $500 a fortnight in rent. 2. Family members who share can take advantage of a quirk in the system. Consider this example of a woman living with and paying board to her brother and his partner. All are receiving an Age Pension, but the sister is also able to claim Rent Assistance for the amount paid to her brother (assuming she is paying at least $302.27 a fortnight). The rental payment is not considered as income for the brother from a Social Security assessment. YourLifeChoices disclaimer

If the payment for the life interest is under the extra allowable amount (the difference in the assets threshold for a homeowner and non-homeowner) – $207,000 as at January 2019 – a person can qualify for Rent Assistance if rent is paid.

Use of a site or structure for a caravan, relocatable home or a boat A person in a caravan, relocatable home or boat is considered a homeowner but not a non-eligible homeowner and therefore is able to claim Rent Assistance, irrespective of the value of the caravan, relocatable home or boat. DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

YourLifeChoices Retirement Affordability Index™ March 2019


Cost-proof your home to contain the big bills Older Australians tell us they want to age at home, but how do you keep the big household bills to a minimum? Janelle Ward offers some tips, with research from Choice investigations.


ourLifeChoices surveys tell us that you want to age in your home, but you’re worried about outliving your savings. So how do you make your home run as efficiently as possible?

Energy Heating and cooling accounts for 40 per cent of our energy bills, so it's an area where we can make big savings. In winter, 25 to 35 per cent of an uninsulated home's warmth is lost through the roof. In summer, an uninsulated home will not be protected from the outside heat. Check that your home or unit has good insulation. Insulation can be installed in all parts of the home's envelope: under the roofing material, in the ceiling between the joists, on the inside or outside of solid walls and on the underside of suspended floors. Shade your windows. During hot summer days, this will help to keep the heat out, and on cold nights, curtains or blinds help to keep the heat in. Next, ensure your dwelling is sealed tight. Draughts can account for up to 25 per cent of heat loss from a home in winter. Australian buildings leak warm or cold air two to four times more than European buildings. Seal gaps around doors and windows; install a chimney damper that can be closed when there is no fire, or a chimney balloon when it's not in use for months; choose exhaust fans and rangehoods with louvres that self close; avoid downlights (the metal components conduct heat, drawing it up into the roof and ceiling insulation can't cover them due to fire risk), and think carefully about skylights (they can save on lighting but will also leak heat). Finally, use your common sense. Close internal doors so you're only heating and cooling rooms you're actually in, and use passive heating and cooling, for example, opening windows to let in a cooling breeze. 16

Smarter ways with appliances Unplug your appliances when they're not in use. Your TV, computer, microwave and conventional ovens and even some washing machines have a 'standby' mode, which means they're still using energy even when they're not in use. Buy appliances with a good energy rating. The more stars, the better – but think about size first. Often it's easier for a larger model to be more efficient (and therefore have more stars) than a smaller one. However, since it is bigger, its overall energy consumption is usually higher. The Water Efficiency Labelling and Standards (WELS) scheme allows you to compare the water efficiency of different products – the more stars, the better. Ratings are compulsory for all new domestic washing machines, dishwashers and toilets. Pick the right washing machine. Although they usually cost more to buy, most front-loaders save you money over time and are kinder to the environment because they use less power, water and detergent than top-loaders. Choose an energy-efficient fridge. Your fridge and freezer are working non-stop and the energy they consume adds up quickly. All new fridges sold in Australia must meet Minimum Energy Performance Standards (MEPS). Look for a model that uses a hydrocarbon, such as butane or pentane, as the refrigerant and/or blowing agent for the insulation foam. All fridges on the market are CFC-free, so don't base your purchase decision on CFC free labels.

Water Australians use more drinking-quality water per capita than any other country – 100,000 litres per person/ year – despite this being one of the driest continents on the planet. So how can we save water from a resource point of view as well as to contain water bills? Collected rainwater is ideal for watering your garden, flushing the toilet and washing clothes. Contact your water authority and local council for advice on how to install and maintain a rainwater tank.

YourLifeChoices Retirement Affordability Index™ March 2019

Smart homes In 2015, the average Australian household had nine connected devices. Last year, it was 17, and by 2022, it's expected to reach 37. That's a four-fold increase in seven years. For the technologically minded, the benefits in terms of ease of operation – especially for anyone with mobility issues – and security are many. Smart assistants such as Google Assistant, Siri and Alexa can be the central hub of a smart home, controlling all your devices from one spot via voice commands. Fridges, ovens, washing machines and even microwaves have joined the fray with a variety of uses, such as pinging your phone when something is cooked or the washing is done. Smart fridges have an internet-connected touchscreen on the front and some include internal cameras to answer the age-old shopper's conundrum of “do we have milk at home?” Recycled grey water from showers and the laundry can be stored for use on the garden or in toilets or it can be diverted to the garden with a plumbed-in diverter. Conditions may apply in your area, so you will need to contact your local council for advice. Buy a water-efficient showerhead – these are great water-saving devices. Grow sustainable gardens. Gardens can soak up 40 per cent of a household's water use, so choose plants that are suited to the local climate. Pot plants use a lot of water as the roots can't reach deep into the soil. Install water-efficient drip irrigation systems to reduce run-off and evaporation, but make sure you control the timer. And mulch, mulch, mulch!

Solar To calculate what size solar panel system you need, you must work out how much electricity you use and when you use it. As a guide, a typical home uses 20 kilowatt hours (kWh) of energy a day, which equates to a 5kWh system. The power output of your whole solar system matters more than the size or number of panels. The higher each panel's nominal power rating (and actual power output), the fewer panels you'll need (or the more power you'll generate). If you have plenty of roof space, you might find it more economical to buy cheaper panels with lower efficiency and just use more of them. It takes anywhere from two to seven years for a solar system to pay for itself – after that you can start counting the savings. YourLifeChoices disclaimer

Smart switches let you turn devices on or off with voice commands or from your phone. Smart lights can turn on and off, and dim. Smart cameras connect to your wifi network and can be controlled via app or voice. Coupled with a smart lock, you can see who's at the door and unlock it without getting up. Some gadgets and appliances track energy and water usage so you can work out how to cut back and help the environment. The price of home automation depends on how far you want to go. Simple – $100–$200: If you want to walk into a room, tap a button on your phone and watch a couple of lamps turn on at once, you can retrofit smart switches to so-called ‘dumb devices’ for about $50 per switch. You can add an entry-level smart speaker from Google or Amazon for about $80. Intermediate – $500–$1000: This is where things start to get a little more advanced, but are still generally limited to basic commands. Here, you're buying devices that can connect to an automation network piggybacking on your wifi, to do such things as dim lights, turn on speakers or schedule a heating cycle. Advanced: $5000-plus: At this point, things get to be a lot of fun. In addition to issuing simple commands, you can monitor devices from a smartphone or smartwatch – and even ask Google to suggest recipes based on the expiration dates of foods in your fridge.

YourLifeChoices Retirement Affordability Index™ March 2019


So you want to age at home? Here’s what you need to know For all those who want to stay in their homes for as long as possible, Louise Biti, director of Aged Care Steps, has one critical piece of advice.


geing well is about being prepared. How will you handle potential changes in your physical and mental health as you age? How will you manage your finances to ensure you have choice and flexibility? If you experience increasing levels of frailty, this does not automatically mean you will have to move out of your home, but you may need to ask for some help to maintain your independence or to reduce the pressure on family and friends.

Government-subsidised services The CHSP and Home Care Packages provide help through services such as: • meal preparation • cleaning and laundry services • help with showering/bathing and dressing • basic home maintenance • basic nursing care • transport services • allied health and therapy services.

Without help, your health may decline more rapidly and may result in an earlier move into residential care.

Choices for home care If you want to stay in your home for as long as possible, an important component of your planning is knowing what services are available and which ones are likely to best suit your needs.

The CHSP may be suitable if you are mostly able to cope at home and just need basic help with one or two daily activities to maintain your independence. The service providers receive funding grants from the Your local council may Government and can decide level of capacity to provide provide services for older their support and the fees you will be people to help them charged.

engage in the community or to manage expenses.

Family and friends may be able to provide the support you need or you can pay people to provide these services. The Federal Government subsidises a range of services to help manage the costs and make care more affordable. Your four main choices for accessing help in your home are to: • rely on friends and family • pay for private care services • access the Commonwealth Home Support Program (CHSP) • apply for a Home Care Package. The last two options – CHSP and Home Care Packages – are subsidised by the Federal Government, making them affordable sources of care. 18

Home Care Packages are tailored and coordinated to meet your individual requirements when you have a number of health issues and more frequent or complex needs for care services. The allocated package provides you with a specific budget and you can choose which services you would like to access. The fees you pay for a Home Care Package are determined by the Government, with a basic daily care fee and an income-tested fee. The government website, MyAgedCare, is your first contact point for both CHSP and Home Care Packages. You will be asked a quick set of questions over the phone so you can be referred to an appropriate assessment team. The assessors will usually visit you in your home (or hospital) to talk about your needs and make observations on your capacity and your home environment. Contact MyAgedCare on 1800 200422 or visit

YourLifeChoices Retirement Affordability Index™ March 2019

Local council services

Making your choice

Your local council may provide services for older people to help them engage in the community or to manage expenses. Examples of these services include: • library services that deliver books to your home • disabled parking zones and permits • older citizen centres and support groups • community buses • seniors cards that provide a range of discounts.

Choosing the most appropriate option will depend on your personal, home and financial situation as well as the level of help you need.

You should ask your local council for details of services provided. The council may also be able to provide a list of local CHSP and home-care providers.

Support for carers Helping you to stay at home may also require support services for your carer. This support may be respite to give the carer a break or tools to help undertake caring activities. Two organisations in particular that provide support include: • Carers Australia – • Dementia Australia – You may wish to spend your last days in the familiar surroundings of home with family and friends, rather than in a hospital or hospice. Palliative care programs can support this choice to receive end-oflife care in the home. Information on palliative care is available at YourLifeChoices disclaimer

Some key questions to consider include: • What kind of tasks do you need help with to continue living in your home? • Which tasks are most important to you? • What support do you have around you from family and friends? • How involved are these people in your daily life and what capacity do they have to help with your care needs? • Can you afford to pay for private care or do you need to access government-subsidised services? While it is important for you to make decisions based on your preferences, it is also critical to involve your family and friends in this process to understand the impact on them and the concerns they may have. Seeking advice from an accredited aged-care professional can help you and your family make fully informed choices. DISCLAIMER: The information in this article is general and does not take into account your particular circumstances. We recommend specific financial tax or legal advice be sought before any action is taken to apply the rules to your specific circumstances. Refer to the relevant Product Disclosure Statement before investing in any product. Aged Care Steps ABN 42 156 656 843 is holder of AFSL 486723. Current as at 10 March 2019.

YourLifeChoices Retirement Affordability Index™ March 2019


Government update YourLifeChoices keeps you up to date with retirement income changes. Easter closure

Asset limits

Centrelink advises that its reporting and payment arrangements may change over the Easter and Anzac Day period.

The new asset limits for part age pensioners from 20 March are:

Offices will be closed on: • Friday 19 April 2019 for Good Friday • Monday 22 April 2019 for Easter Monday • Thursday 25 April 2019 for Anzac Day.

Age Pension From 20 March 2019, the following Age Pension payments, supplements, asset and income thresholds came into effect. Maximum Age Pension payment rates Single       Couple (each)      

Base Supplement Energy Supplement Total Base Supplement Energy Supplement Total

Previous $834.40 $67.80 $14.10 $916.30 $629.00 $51.10 $10.60 $690.70

Current $843.60 $68.50 $14.10 $926.20 $635.90 $51.60 $10.60 $698.10

Increase $9.20 $0.70 $9.90 $6.90 $0.50 $7.40

Pension Supplement The Pension Supplement is paid as part of certain regular fortnightly income support payments to help eligible recipients meet the costs of daily household and living expenses. Pension Supplement basic amount Single Couple separated Couple (each)

Previous $23.60 $23.60 $19.40

Current $23.80 $23.80 $19.60

Increase $0.20 $0.20 $0.20

Pension Supplement minimum amount Single Couple separated Couple (each)

Previous $36.30 $36.30 $27.40

Current $36.70 $36.70 $27.70

Increase $0.40 $0.40 $0.30

Income limits You can still receive a certain amount of income and receive an Age Pension. The income limits from 20 March are: Situation Single Couple (combined) Illness separated (couple combined) 20

For full pension/allowance For part pension(pf) (per fortnight) up to $172 less than $2024.40 up to $304 less than $3096.40 up to $304

less than $4008.80

Centrelink asset test limits for part Age Pensions Situation Single Couple (combined) Illness separated (couple combined) One partner eligible (combined assets)

Homeowners $567,250 $853,000

Non-homeowners $774,250 $1,060,000





Work Bonus From 1 July 2019, both employed and selfemployed pensioners over the age pension age and Veterans’ Affairs pension recipients over the qualifying age can earn up to $300 a fortnight through work before this income is assessed by the pension income test. The maximum Work Bonus accrual amount will also increase from $6,500 to $7,800. The Work Bonus was set at $250 when the scheme was introduced in 2011 and has not been increased since.

Pension Loans Scheme From 1 July 2019, the Pension Loans Scheme (PLS) will be expanded, with the available fortnightly loan plus pension amount increasing to 150 per cent of the maximum rate of the fortnightly Age Pension.

Lifetime income products From 1 July 2019, new means testing rules will be introduced to assess pooled lifetime retirement income stream products. The following rules will apply to these products: • an income test that will assess a fixed 60 per cent of all product payments as income • an assets test will assess 60 per cent of the nominal purchase price until the life expectancy of a 65-year-old male (currently age 84) – or a minimum of five years – and then 30 per cent for the rest of the person’s life. These rules will apply to all pooled lifetime products held by social security or Veterans’ Affairs income support recipients acquired on or after 1 July 2019.

YourLifeChoices Retirement Affordability Index™ March 2019

YourLifeChoices disclaimer

Profile for YourLifeChoices

Retirement Affordability Index - March 2019  

How to cut the cost of owning a home – and cash in if you need to boost your income.

Retirement Affordability Index - March 2019  

How to cut the cost of owning a home – and cash in if you need to boost your income.