THE current debate (or non-debate, if you happen to be a member of parliament) about the exclusion of the home from the aged pension assets test, is a nettle that I will leave those more politically astute than I to grasp.
However, it does raise an important financial planning issue for retirees and empty-nesters.
A neat side effect of the 'great Australian dream' is that much of middle Australia reaches their 50s or 60s sans mortgage and kids at home.
Whether it is a wise financial strategy to focus so much energy on owning real estate, I will leave for another time. Nevertheless, it presents two very effective financial strategies to lock-in a more comfortable retirement.
The first is a 'Transition to Retirement' strategy, which I discussed in my last column. The second is downsizing the family home to release equity for investment to help fund retirement.
The logic of the latter strategy is quite straight forward: you release capital from an illiquid, non-income producing asset for investment in asset classes with these characteristics, thereby providing a higher and more effective income stream in retirement.
The first step, and possibly the hardest, is to detach emotionally from what may have been the family home for decades.
I have seen many clients and friends go through the angst of this decision over months and years, only to come out the other end wondering why they took so long to do it. Each to their own, however.
The timing must be right for you and your family.
From a financial perspective, though, it is very much a case of the sooner the better.
This is because of compounding and the tax incentives supporting superannuation.
In short, the longer your money is working for you in the friendly superannuation tax environment, the greater your retirement wealth will be.
After-tax lump sums of between $180,000 and $540,000 (using the 'bring forward' rule) from asset sales can be contributed to superannuation in a financial year, provided you are still working.
So as soon as the kids leave home, it is worth developing a downsizing strategy with your financial adviser.
For those intending to take advantage of the current aged pension assets test to keep their home, I would strongly recommend a Plan B.
* CAMPBELL KORFF is the principal of Yellow Brick Road Wealth Management, Northern Rivers.
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