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James Coyle
James has over 35 years experience in financial services with particular expertise in two of the key components of retirement finance - Superannuation and the Age Pension. He is passionate about providing the guidance and support that can help older Australians enjoy their best possible retirement. He lives in regional Victoria surrounded by dogs and chooks.
Another form of cash is redrawing on a house load. I have an account-based (allocated) pension, part-aged pension and a CSS pension (indexed for life). I also have and a house loan that has been paid off but still open so I can use redraw.
If I need cash I can afford to borrow the money because I have the capacity to repay the loan quickly and interest rates are very low. If I need cash and withdraw from my account-based pension I can’t put the money back whereas, because of very low-interest rates, it is cost-effective to redraw on my house loan.
Spot on Thomas
The cost of withdrawing from your account based pension is (say) 8% per annum (the income foregone by having a lower balance). The cost of drawing down on a home loan could be only 2%.
This is effectively a reverse mortgage but at a much lower rate. You can repay the loan from your acount based pension at a time of your choosing (or simply leave it as an offset against the value of your home in your estate.
I have always been curious why this strategy is not more commonly adopted
I agree with both Kyle and Thomas. A fully paid off home loan or line of credit (with a debt of for example $50 to keep the account open) is a very inexpensive way to maintain a reserve of money that is instantly accessible if needed. My fortnightly mortgage payment is $2.00 and even that is still available to me as a redraw.