Is retiring as safe as houses?

Old Stan Pendergast had a stack of fibro down the back past the chook shed, and each time one of his seven children arrived, he picked up a few sheets and added another bedroom.

As the kids grew up and left home, he re-adjusted his family’s lifestyle by knocking down the room and taking the sheets of fibro back to the pile.

We don’t live like that any more.

The family home has changed and so have our attitudes towards it.

Just a few years ago, the Australian Securities and Investments Commission (ASIC) regarded the family home as sacrosanct and threatened planners with a fate worse than death if they dared to fiddle with so much as a cent’s worth of its gold plated equity.

The idea of the ideal family home was a debt-free bastion of financial solidarity to be sold only if absolutely necessary, or passed on to the poor, deserving offspring.

A family home was a measure of success — a goal rather than an investment in real estate.

Attitudes change slowly, but they do change. The structured/accelerated mortgage came along and provided homeowners with a perfectly good reason to do something creative with their unencumbered equity.

The powers-that-be were far from delighted with this violation of the unsullied family home but as the general population began moving away from traditional banking thought processes and into more client-oriented options and the markets became disintermediated, the structured mortgage struck a chord with the population at large.

It was a good move for the financial planning industry and a good move for people wishing to minimise their exposure to 30 year bank loans and grow some personal wealth.

It was possible to unlock equity in the family home but not altogether wise according to the pundits.

Then just when everything had settled down nicely, in rode the baby boomers to jangle everybody’s nerves with a new form of reality.

They’d lived the good life. They’d expected to stay 30 years old forever and were quite sure a poverty-stricken retirement meant cutting back to two cars, living in a house three streets back from the beach and buying red wine for less than $20 a bottle.

Trouble was, they’d spent all their money and didn’t have any superannuation.

In early July, the National Centre for Social and Economic Modelling released figures estimating people aged 50 to 64 have an average of just $56,000 in their superannuation funds. The Association of Superannuation Funds of Australia (ASFA) estimates that most retirees are currently looking forward to an average income of just $19,000 per year in addition to the pension.

So what’s the next step?

Fortunately, baby boomers bought family homes in affordable, less-than-salubrious suburbs like Manly, Coogee, Carlton, Unley, Bulimba in Brisbane and Perth’s Fremantle.

In Sydney, the $50,000 home purchased in 1975 is now likely to be worth as much as $1.5 million.

Now that the kids have gone, Mr and Mrs Baby Boomer are living in just two or three rooms in the unassailable family bastion.

Admittedly, retirement in a comfortable home, close to friends, facilities and familiar surroundings is a huge advantage. But not at the expense of living on $19,000 a year!

Let’s consider some alternatives. Let’s look at the family home as an investment in real estate rather than a shrine to the family.

The easy answer is to sell the big house, move into something smaller and invest the surplus, however, this solution may not be appropriate for a number of reasons.

In a few cases, we can borrow against the asset and look at a suitable gearing strategy.

But maybe we should think about developing some sort of ‘retirement loan’ with the home sitting behind it as ultimate security.

Maybe its time to take another look at the reverse mortgage market (whereby a bank or finance provider provides the property owner with a lump sum or an income stream in return for part or all of the home at a later date).

If people are to live well and enjoy life in retirement, they (we) can’t possibly expect to rely upon government support. Nor can we wrap the family home in cotton wool and preserve it debt free so the kids can sell it at deceased estate prices the moment we’ve popped off the perch.

The very nature of the family home has long surpassed its original functional role. Whether we like it or not, the family home has taken on a very important role in generating whatever we need to survive well past our designated three score years and 10.

But we need to be a bit adventurous. Maybe the governments and the regulatory bodies need to recognise the fact and either set up their own reverse mortgage programs or make it worthwhile for retirees to cash in the goldmine and live happily ever after in their own homes on their own fairly substantial funds.

Ian Freeman is nationalmarketing communicationsmanager for Pacific General Securities Limited.