Retiree Finance Guide
Retirement changes your relationship with debt and insurance. Your income source shifts from employment to superannuation and the age pension, which affects how lenders assess serviceability. At the same time, your insurance needs evolve and asset protection becomes more important than accumulation.
1Key Financial Priorities
Assess whether to pay off your mortgage or invest
For many retirees, eliminating the mortgage is the highest-returning risk-free investment available. If your home loan rate is 6% and your cash account pays 4%, paying off the loan is the better return. However, superannuation earnings inside the fund may outperform your loan rate.
Understand your borrowing capacity in retirement
Lenders assess repayment ability based on income, including super drawdowns and the age pension. If you are applying for a loan in retirement, be prepared for stricter income verification. Some lenders have an upper age limit for loan terms (typically 75 to 80 years old at loan expiry).
Consider downsizing and the downsizer contribution
If you sell your principal place of residence and you are aged 55 or older, you can contribute up to $300,000 per person ($600,000 per couple) to superannuation as a downsizer contribution. This is outside the normal contribution caps and can significantly boost your retirement savings.
Review all insurance policies
Term life insurance becomes less necessary once your mortgage is paid and children are financially independent. However, health insurance and income protection (if you still earn some income) remain important. Evaluate whether your premiums still reflect good value.
2Best Loan Types for This Stage
Reverse Mortgage
Use with full understandingAllows you to access the equity in your home without making repayments. Interest compounds over time and reduces your estate value. Protected by Australian regulation to ensure you cannot owe more than the property is worth.
Home Equity Access Scheme
Government-backed optionA government loan that allows eligible retirees to borrow against their home equity at a lower interest rate than a commercial reverse mortgage, with the loan recovered from the estate.
Standard Variable (Paying Down)
Best if still earningIf you have super drawdown income, a standard variable rate loan with no fees and redraw allows flexible repayment while maintaining access to funds if needed.
3Insurance Needs at This Stage
- ✓Private health insurance, especially hospital cover, becomes increasingly valuable in retirement
- ✓Home and contents insurance should reflect replacement value including any renovations
- ✓Consider funeral insurance or a pre-paid funeral plan to reduce the financial burden on your family
- ✓Travel insurance that covers pre-existing conditions if you plan extended travel
4Common Mistakes to Avoid
- ✗Carrying expensive income protection insurance past the age when you no longer earn an income
- ✗Not taking advantage of the downsizer contribution scheme when selling the family home
- ✗Entering a reverse mortgage without independent legal and financial advice
- ✗Keeping a life insurance policy sized for a mortgage that is now mostly paid off
- ✗Not reviewing home and contents insurance after the children have taken furniture and belongings
5Tips for Getting the Best Rates
- 1If you still have a mortgage, ask your lender for a loyalty rate review, retired borrowers with low LVR are low-risk customers
- 2Consider fixing your interest rate for certainty on a fixed income
- 3Compare energy plans annually as a cost reduction strategy on a fixed income
- 4If considering a reverse mortgage, compare the government Home Equity Access Scheme first
