While property may seem like a good way to build – and hold – wealth, is it actually possible to use it as a way to fund your retirement?

Superannuation, shares, property, cash, other investments… a dizzying number of options are available when it comes to living comfortably through retirement. Financial advisers often promote a diversified portfolio to reduce the risk of concentrating ‘all eggs in one basket’.  Still, Aussies love their property, with more than 2.2 million of us opting for investing in property, with almost 60% of those aged 50 or over holding property investments1.

Aside from simply owning a secure place to live through retirement, investing in property can also provide regular post-work income and might offer some assurance as a ‘safe’ investment option. Property is a physical asset and can seem less volatile than other investments, particularly when heading into a phase of life that holds uncertainty and where you may think: “What happens if I outlive my savings?”

But different risks and tax obligations in retirement can alter the attractiveness of investments and, when it comes to property, there are a range of strategies that offer different pros and cons when using it to fund retirement. 

Before you make any plans or decisions, you can use a calculator to see a ballpark figure of how much money you might need in retirement based on your age, retirement timeline and desired lifestyle. The AMP retirement calculator may be able to give you an idea.


Living off rental income from an investment property

On the surface, living off rental income in your retirement is an attractive prospect. But you may need to first make sure the lifestyle you want doesn’t exceed your investment property’s returns, taking into consideration any mortgage repayments, taxes and maintenance costs, as well as factoring in for times when the property may not have tenants. Many people find they need multiple properties in their investment property portfolio to generate enough income to support their retirement lifestyle2 .

Pros of living off rental income

Capital appreciation: If you’ve owned a property for a while or have made significant improvements, chances are it may have grown in value – and may continue to do so. Growth in value can also mean higher rental rates and returns. 

Interest rates are at all-time lows: Which means low mortgage repayments, if you have them3

Outgoings can be low: If you’re healthy and handy, you can leverage your free time in retirement to save maintenance costs by doing your own property management and minor repairs.

Holiday ahoy: Many Australians choose to purchase investment properties in holiday locations. When leased, your tenants provide an income stream; when not, you have an instant holiday house for yourself or perhaps a short-term rental.  

Cons of living off rental income

Ongoing costs can pile up: In addition to anticipated outlays – property management, insurance and rates – you risk unexpected costs like emergency repairs and oft-forgotten long-term appliance or structural replacements.

Income from your investment property may be subject to income tax: This will depend on the net amount per financial year– and the amount and type of any other income.

Liquidity is restricted: If you need funds unexpectedly e.g. for medical costs, to take a holiday, or for emergencies, you can’t sell a single room of your investment property as you can with shares of stock – the whole thing has to go, and it will take some time before you get the actual sale proceeds.

Your income isn’t guaranteed: the rental market can change and it might mean that your property can be empty for periods of time.

Living off equity

This option essentially sees you paying-off as much as you can on your property while working (reducing the loan-to-value ratio) and then funding your retirement by borrowing against the equity (the value of your home, less any mortgage) if and when you need it. A number of strategies are available, including home reversion, reverse mortgage and home equity release. Keep in mind that the amount of money you can access depends on your age, the value of your home and the type of equity release5

Pros of living off equity

It’s tax free: You don’t have to pay tax on this ‘income stream’ as it is effectively a loan.

You can tailor the amount of equity you borrow: Whether it’s regular payments, a lump sum, line of credit or a mix.

You don’t have to sell: If the equity is in your own home, you get to keep living there and you don’t have to make repayments while you do.

Negative equity protection: means you will never end up owing your lender more than your home is worth if you take out a new reverse mortgage6.

Cons of living off equity

There are costs involved: Application, service and end-of-agreement fees may apply. Check with your lender as they may vary from lender to lender.

A volatile market: This strategy only works well if your property is increasing in value.

You are converting capital to debt, for yourself or your beneficiaries: Some dub this investment strategy “spending wealth, rather than cash flow.”

The amount you can ‘borrow’ is restricted: If you’re 60, you can only access 15-20% of the value of your home. As a guide, add 1% for each year over 607. Over time, your payback interest rates may be greater than an average home loan. With home reversion, you ‘sell’ a share of your home usually for well under market value.

Selling property to fund retirement

To sell or not to sell? It’s a question many Australian homeowners face as they enter retirement, regardless of whether it’s the family home or an investment property. If this is to be your major income through retirement, check that any profits you reap will equate to comfortable golden years. Also consider the effects of re-buying or renting in the same market if you’re downsizing.

Pros of selling property

Selling your property may mean you have an increased cash flow: You can use it to pay off debt or invest in shares or in managed superannuation funds, which may provide additional tax benefits and liquidity.

You may not have to pay capital gains tax: This may apply if your property is your primary residence, or you purchased it before September 19858.

Cons of selling property

Capital gains tax: When selling an investment property you’ve never lived in, you may be liable for capital gains tax on any profit.

All those costs of selling a property: Real estate agent fees,  legal fees, moving costs…

Timing: If you need to sell in a hurry to fund your retirement, you may not be selling into the best market. Liquidating during a market downturn can mean a significant hit to your retirement income. On the other hand, selling at the top of the market could mean boosting your super balance with a large lump sum, but remember the pension transfer balance cap limits the amount you can invest in a tax effective retirement pension9.

Your bank balance: Selling your home may impact the amount of Age Pension you receive10.

No one-size-fits-all approach works when it comes to using property for retirement. With so many factors influencing your decisions, it’s wise to consider your options, do your research, sign up for a retirement health check or speak to a financial adviser

According to the research...

2.2 million

Australians own investment property1

60%

of these investors are aged 50 or over1

15 to 20%

the value of your home you can access if you’re 60. Add 1% for each year over 605

1 Australian Taxation Office: Taxation statistics 2017-18 
Propertyupdate.com.au: How many properties do you need to retire?
Reserve Bank of Australia. Cash rate target
4 Moneysmart.gov.au: Retirement income and tax
5,6,7 Moneysmart.gov.au: Reverse mortgage and home equity release
8 Australian Taxation Office: CGT assets and exemptions
9 Australian Taxation Office: Transfer balance account
10 Department of Veterans’ Affairs: How owning a home can affect pensions and payments

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Important information

This information is provided by AWM Services Pty Ltd (ABN 15 139 353 496) and is general in nature only. Before deciding what’s right for you, it’s important to consider your particular circumstances and read the relevant product disclosure statement or terms and conditions available from AMP at amp.com.au or by calling 131 267.

The value of investments may go up or down and you may not get back the amount you invested. Taxation issues are complex. You should seek professional advice before deciding to act on any information.

The retirement health check is provided by ipac Securities Limited ABN 30 008 587 595, AFS Licence No. 234656 (ipac) to eligible members in the Super Directions Fund and is a general advice conversation only.

You can read our Financial Services Guide online for information about our services, including the fees and other benefits that AMP companies and their representatives may receive relating to products and services provided to you. You can also ask us for a hard copy.

All information on this website is subject to change without notice. AWM Services and ipac are a part of the AMP group.