Deloitte’s Andrew Boal believes there is a role for advisers to help clients understand longevity literacy as retirees find themselves “asset rich, cash poor”.
In the paper, More than just a roof: Changing the narrative on the role of the home, the consultancy firm shared its insights into retirement and how it can be funded. In particular, it said it believes housing should be the “fourth pillar” of retirement alongside superannuation, the age pension and voluntary savings.
Boal, who is a partner in Deloitte’s superannuation and investment practice, said retirees need to think of their home as a key financial asset that can provide income in retirement versus as a nest egg or an asset for their children to inherit.
According to the Productivity Commission, 71 per cent of survey respondents said they saw the family home as their “safety net” and 44 per cent said they wished to pass it on to their children.
With Australian property values booming, many retirees are “asset rich, cash poor” as they may own their own home but are living frugally or on the age pension. More than 80 per cent of people aged 65 to 74 are still living in their own home, according to the Australian Institute of Health & Welfare.
“If retirees accessed 20 per cent of the $1.3 trillion they hold in home equity, it would unlock about $260 billion to help fund what could be 25 to 30 years or more in retirement,” Boal said.
The role advisers can play in this transition is by educating their clients on the costs of retirement, particularly around longevity literacy.
“Enhancing the quality of financial education and guidance, as well as the affordability of financial advice to retirees, would be a good first step, with many retirees not across the ways they can more effectively utilise their superannuation savings and access part of the equity in their homes to improve retirement outcomes.
“Longevity literacy is about understanding the time horizon they need to plan for in retirement, recognising that people are generally living longer than before and sometimes a natural point of reference is the age to which their parents live, which may cause under-planning for their own retirement,” the report stated.
“Financial and longevity literacy includes knowing how decisions you make today will impact your financial position in the future, how long that future may last, and knowing which products and services are best to use for your personal circumstances, whether it is for buying a home or for retirement spending.”
Boal flagged the nature of issues such as cognitive decline and elder financial abuse meant this should be an ongoing discussion between the adviser and client.
“It doesn’t happen overnight; it is a journey of continuous learning.
“We therefore need to continue engaging Australians with the right information, education, guidance and advice to help them prepare for success in retirement, accompanied by strong regulatory frameworks across providers and which include appropriate consumer protections.”
The report also noted the need to address the financial disincentives to accessing part of the wealth stored in a property, such as removing or refunding some frictional costs associated with downsizing and changing the means test treatment of the sale proceeds.
Other recommendations include ensuring there are strong disclosure requirements and consumer protections for home equity release; improving equity in the system for renters; reducing incentives to store wealth in the home; and making it more acceptable for retirees to spend home equity.
