We always have that picture in our mind—the day when we finally stop working and spend the rest of our lives in beachfront houses with the love of our life, walking in the sand and watching sunset together. But according to a director of Retirement Research Alicia Munnel, this idea is far from what is going to happen in the future. “The idea that people can retire at 62 and walk around holding hands on the beach, it’s not realistic,” she said.
In her book “Falling Short: The Coming Retirement Crisis and What to Do About It” that will be released on Dec. 12, she mentioned that retirement in the 21st century would mean “working longer, saving more, and passing fewer assets on to heirs.” Although the research is U.S based, it applies to most western democracies, and certainly to Australia.
The inconvenient truth
More and more people will realise that as soon as they retire, they will have few savings in their bank accounts and yet, they are often too old for work and there are few options for improving income. Economic and demographic factors have affected our support system and things are changing before our eyes. The decline in birth rate means less people paying tax and increase in ageing population means more people running to government for support. There have been new set of reforms to address this issue, but as early as now, these reforms are being criticised to work only for rich individuals.
“People are not going to have enough money when they stop working,” warns Munnel. According to her, we need to fix this while we have time because this is really important and it determines the quality of life we will have in our twilight years.
While trying to be in the workforce as long as we can gives us a good leverage, it is often difficult to find work in our 60’s and 70’s. This is unfair, but the reality that many people face. But there’s no need to lose hope as other options can be available. Though reverse mortgages have developed a mixed reputation since they were introduced a decade ago, latest research articles combined in “Journal of Financial Planning” verified the importance of reverse mortgage and how it helps improve the retirement sustainability of individuals.
Here are five reasons why reverse mortgage fits modern-day Australian retirement planning:
- Reverse mortgage is safe. Whether it is safe or not is the ‘sixty-four million dollar question’ for many people. Well, we all know that the home is after all a family’s biggest asset and carrier of memories of a lifetime. It’s normal that people are a bit hesitant for anything that involves their home. However, having a good financial advice and a trusted reverse mortgage broker will let you enjoy these loans and have a better lifestyle whilst maintaining the security of home ownership.
- Reverse mortgage is flexible. Reverse mortgage allows you to borrow against the value of your home and payments can either be a regular income stream, a lump sum, or a line of credit. One great advantage is you can also use a combination of these options. This comes handy when you want to carefully plan how you are going to spend your reverse mortgage payments.
- Protection against negative equity. The new government legislation protects owners from ending up in debt and owing more than the value of their home. Beginning 18 September 2012, reverse mortgage contracts apply ‘negative equity protection’ so that when your contract ends, the lender cannot hold you liable if the sale price exceeds your actual accumulated debt. And when the sale proceeds exceed the amount you owed to the lender, you or your family will receive the extra funds.
- Providers are monitored by SEQUAL. Senior Australian’s Equity Release Association of Lenders or SEQUAL is an industry body that oversees responsible provision of home equity release of lenders to the public. SEQUAL maintains a strict code of conduct and requires you to have legal advice before entering any contract. Dealing with a legit provider that is accredited by SEQUAL gives you peace of mind and guarantees you of ‘no negative equity.’
- You can control how much you borrow, & how much you draw. You can decide how much or little you want to borrow (subject to bank approval & product guidelines). In most cases reverse mortgage lenders will allow you the option to establish a ‘limit’ of funds available, which you as the borrower can then control drawdown/access as you want. That is, you may have a significant pool of money available, but by limiting what you actually use now you may ensure less impact on your future financial position.
For questions or inquiries, Seniors First reverse mortgage brokers in Australia are always here to help you. Call 1 300 745 745 today for a free initial consultation.