Rethinking the role of your home in retirement

This begs the question: How and when can these savings be withdrawn?

One home, many functions

A family home that is fully paid for or close to it when you retire provides more than a roof over your head. It is also:

• A store of tax-free wealth, as the family home is not subject to capital gains tax when sold
• A way of maximising Age Pension entitlements, as it is not included in the assets or income tests
• A potential way of financing residential aged care
• A future bequest to your children.

When you think about your family home that way, it’s more like the foundation of your retirement plan than a decorative plinth, as it underpins all three pillars.

In Australia, for the reasons listed above, the tax treatment of the family home leads to a perverse incentive to own outright the biggest, most expensive home you can afford as you head into retirement.

For all the talk of super, most Australians currently enter retirement with more wealth in their home than in their super.

Asset rich but housing debt on the rise

Australian retirees are some of the wealthiest in the world. While super plays an increasingly important role in retirement outcomes, housing wealth still takes centre stage as a marker of financial and personal wellbeing.

That’s partly because today’s retirees – especially women and anyone with a broken work history – haven’t had the full benefit of compulsory super to sustain a comfortable standard of living in retirement. However, they do have relatively high levels of home ownership.

In 2023, around 83% of retirees owned their home, either outright or with a mortgage, according to the 2025 Household, Income and Labour Dynamics in Australia (HILDA) survey. That rate has fallen from 88% in 2003 and will drop further in the coming decades due to affordability issues pricing younger people out of the market.

The HILDA report also reveals a gap between the average wealth of recent retirees who own their home outright and those who still have a mortgage.

Retirees who own their home outright had a total wealth of $1.66 million on average in 2023, with more than $1.14 million of that tied up in home equity and $500,000 (less than one-third) in super.

Retirees with a mortgage had a lower total wealth of $1.48 million on average, with just $872,668 in home equity and $295,025 mortgage debt, up from $125,303 in 2003. They also had a lower average super balance of $409,592.

Even so, the total wealth of both groups is substantial and highlights the importance of homeownership for retirees in providing financial security and a sense of wellbeing in retirement.

In contrast, retirees renting privately not only lacked the financial security of owning their home but also had lower super balances on average, at just $277,000.

Yet the focus of retirement planning is fixed on super. Go figure.

Super gap is closing too slowly for some

The good news is that the super gap between men and women, and between individual retiree balances and the amount needed for a comfortable retirement, is closing.

The bad news is that it’s happening too slowly for many of today’s retirees.

While the median super balance at retirement is around $208,000, that figure hides wildly differing amounts.

According to the HILDA survey, the median super balance for women was $190,850 in 2023, up 110% from $90,733 in 2015. The figure for men was $310,325, up 43.5% from $216,295. Progress of sorts, but men still have more than 1.5 times the median balance of women.

There’s also a big gap between the wealthiest and the rest. According to a 2025 Super Members Council report, the top 20% of recent retirees had a median balance of $1.4 million. The next 20% had $523,000, the middle 20% $200,000, the next 20% $49,000 and the bottom 20% just $1,000 in super.

In time, the scales will tilt further towards super as a source of retirement income. The Australian Prudential Regulation Authority (APRA) estimates people born in 1970 (currently aged 55) should retire with $395,000 in super on average. This rises to $541,000 for people born in 1990, now in their mid-30s. Even on those projections, super alone will not necessarily provide a comfortable retirement.

No such thing as a standard retirement

Using the ASFA Retirement Standard as a guide, a combination of income from super and the Age Pension is generally enough to provide income for regular household expenses.

According to ASFA’s sample household budgets, the annual income needed for a comfortable retirement is currently set at around $75,000 for couples and $53,000 for singles. That’s significantly higher than the Age Pension, which is currently set at around $46,000 for couples and $31,000 for singles.

But what happens if you need to replace your car, repair the roof, pay hefty out-of-pocket medical expenses or fund aged care either in the home or a residential facility?

Most retirees will receive a part Age Pension as their super runs low, but they face complex income and assets tests depending on whether they own a home or have a partner.

It’s this middle group, now and into the foreseeable future, that may need to access their home equity to fund the retirement lifestyle they aspire to. However, many are reluctant to downsize or take out a reverse mortgage in case they need their home to fund aged care or because they want to leave it to the kids.

This is borne out by the fact that most retirees die with around 30% of their super intact. Yet many retirees will have lived more frugally than they need to, often in a home that becomes a source of worry as much as a comfort when they can no longer afford to maintain it or pay for help mowing the lawns and cleaning.

Experts argue it makes no sense to live like a pauper to hang onto your home, especially for retirees without children or dependents. And now that we are living longer, the ‘kids’ are often in their 60s by the time they inherit and no longer need help. Or at least, they may not need the full value of the family home.

For these reasons, there is growing interest from retirees and the government in financial products that allow retirees to tap into their home equity.

Unlocking housing wealth

For historic reasons, reverse mortgages have not gained much traction in Australia. But that’s slowly changing, following tighter regulation (see Tighter regulation of reverse mortgages below) and cost-of-living pressures.

So, what are they and how do they work?

Reverse mortgage

Because of the negative connotations of the name, many providers prefer to call their products ‘equity release’ or ‘home equity’ schemes. A reverse mortgage allows you to borrow money against the equity you have built up in your home, that is, the value of your home less any mortgage debt outstanding. Drawdowns can be taken as a lump sum, an income stream, a line of credit or a combination of these.

Interest is charged like a normal mortgage but, rather than pay as you go, all interest is added to the initial loan and repaid when you sell, or by your estate on your death.

Reverse mortgage interest rates are generally around 3% higher than the lowest standard variable mortgage rates. Current interest rates charged by commercial reverse mortgage providers range from 8% to more than 9%.

You retain ownership of your home and can live there for as long as you like. There are caps on the amount of equity you can withdraw, depending on your age, and you can never end up owing more than the value of your home.

The Home Equity Access Scheme (formerly Pension Loans Scheme)

The Home Equity Access Scheme (HEAS) is a reverse mortgage offered by the federal government via Centrelink. It allows Australian citizens/residents of Age Pension age (67) and older who own freehold property anywhere in Australia to receive a tax-free fortnightly income stream by taking out a loan against the equity in their home.

Since July 2022, borrowers can also access lump sum advances. The current interest rate of 3.95% is significantly lower than commercial rates (see section above).

Tighter regulation of reverse mortgages

Reverse mortgages have long suffered from an image problem among consumers who tended to dismiss them as high risk and potentially dangerous, and often for good reason. While there are still risks, the regulation of these products has improved.

There are now consumer protection laws specific to these products as well as general consumer protection laws.

Some of the main consumer protections are:

• A no negative equity guarantee since 2012, which means borrowers can’t end up owing more to the lender than the value of their home when it’s sold
• Borrowers can remain in their home until they die or decide to move
• Lenders must give borrowers projections of the home equity taken using ASIC’s Moneysmart Reverse Mortgage Calculator
• Reverse mortgages are covered by laws that prohibit unfair contract terms
• Product providers must be licensed and a member of the Australian Financial Complaints Authority (AFCA), which can hear consumers’ complaints for free.

Growing awareness of equity release

Although the HEAS has been operating since 1985, the take up was low because few people knew about it. But an extension of the eligibility criteria in July 2019 and the ability to withdraw lump sums from July 2022 has resulted in a jump in participants from just 768 in June 2019 to 13,400 in June 2024.

To put that in perspective, there are 3.7 million homeowners aged 65 and older, so there is plenty of room to expand take up of the scheme.

Most people accessing HEAS are on the full Age Pension, a further 17% are part-pensioners and 5% are self-funded retirees, according to the ARC Centre for Excellence in Population Ageing Research.

So how are retirees tapping into their home equity and what strategies are available?

Strategies for home equity release

Retirees are using equity release for a variety of reasons, including:

• Topping up retirement income
• Replacing more expensive personal loans
• Home renovations
• Helping the kids and grandkids
• A combination of the above.

Whatever the reason, if you wish to continue living in your home for as long as possible, drawing income from your home equity should be viewed as part of your long-term retirement income plan.

While home equity release can provide a valuable source of income for asset-rich, income-poor retirees, it’s not for everyone.

Where the family home is the only significant asset, many people want to preserve it as an inheritance for their kids and grandkids. Others may want the option of selling their home to fund aged care later in life, if that becomes necessary. That said, equity release can also be used to fund aged care.

Experts say home equity release is most likely to be attractive for retirees in their 70s, sitting in an expensive house but with a dwindling super balance and a life expectancy of 10 years or more.

Missing links in retirement income system

While the framework and products are already in place to allow retirees to tap into their home equity, there is still a lack of cohesion between the three pillars of our retirement income system.

After age 74, it is generally not possible to put any more money into super if you’re no longer working. One exception is making downsizer contributions if you sell your home, and some argue there is a case for treating equity release contributions in a similar way.

The Retirement Income Review suggested that including the home in the Age Pension assets test (it is excluded now) might tempt more retirees to access the equity in their home to help fund their retirement. While that would be an equitable solution – putting homeowners on a more even playing field with renters – it would face fierce opposition.

Unpalatable options aside, greater flexibility can’t come fast enough for many retirees currently dealing with declining income.

The bottom line

The family home is often overlooked as a potential source of funds in retirement, as well as being a roof over your head. But awareness is growing as retirees search for ways to boost their income in the face of low investment returns and an Age Pension that is not increasing as much as most would wish.

Home equity products have come a long way and those on offer in Australia are now tightly regulated. If you are considering drawing funds from your home equity, it needs to be viewed as part of your overall retirement income plan.

As home equity products are complex, you should consider seeking independent financial advice.