While it is too early to tell if COVID has brought forward the number of seniors retiring in Australia, what is known is that retirees face years of low interest rates with the RBA Governor stating several times that interest rates won’t rise until 2024.
Paul Rogan from Pension Boost thinks that pre-retirees and the retired are caught between a rock and a hard place with COVID uncertainty and the effects of a sustained period of low interest rates.
“A recent study by Forbes Advisor highlights this uncertainty about retirement trends in the US. More than double the number of Baby Boomers brought forward their retirement plans due to COVID in 2020.
“An interesting point in the study was that more Americans want to age in place and not downsize. This is a consistent trend in Australia and has led to more interest in reverse mortgages to supplement cashflow impacted by low return markets,’” said Paul Rogan, Founder, Pension Boost.
Another risk facing pre-retirees and those early in their retirement is that globally stock markets are at or near record highs and a correction is likely on the horizon.
As we saw in the 2008 GFC, market downturn early in retirement can materially adversely impact the time over which the nest egg will last. The Forbes Advisor report also talks to taking out a reverse mortgage as a strategy to provide cashflow rather than selling growth assets during a volatile market.
The PLS has been in operation in various forms since 1985 and it is one of the Australian Government’s best kept secrets. The intent of the PLS is to assist seniors fund their regular costs of living by accessing some of the equity they have in their home or property.
From 1 July 2019, all Australian resident seniors who own property can access the PLS, including self-funded retirees.
The PLS is a ‘reverse mortgage’ style contract where the Australian Government provides you with a loan amount each fortnight – at a maximum payment level of 150% of the Full Age Pension less any government pension you currently receive.
Paul asked financial planner John Hazell from Richmond Partners in North Sydney for his views on senior’s thinking about reverse mortgages.
John stated that more of his clients are considering the Australian Government’s reverse mortgage option, the PLS, because of its advantages including:
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