Danielle McCarthy

Retirement Income

Huge numbers of Australians retiring with mortgage debt

Huge numbers of Australians retiring with mortgage debt

About 20 per cent of Australians expect they’ll retire with a mortgage, with almost half anticipating they’ll have some form of debt, a white paper from a superannuation fund shows.

Currently, 10 per cent of retirees are paying off a mortgage and as fewer Australians own their homes outright, it’s likely indebtedness in retirement will climb.

The latest research from REST Industry Super found 46 per cent expected to retire with debt. This included 25 per cent anticipating credit card debt, 21 per cent with a mortgage, and 12 per cent with unpaid bills.

But many of those who said they were anticipating leaving the workforce with debt weren’t approaching retirement in the near future – those surveyed were 35-plus.

The research said this was due to the “sandwich generation” who were stuck managing a phenomenon described as “intergenerational dependency”.

This generation – those in their 30s and 40s – were often supporting adult children, including those who could not buy, and parents who had not accrued enough for a comfortable retirement.

Jenna Leo and her partner Mathieu Bertrand, from Wahroonga, have not yet bought a home as they have been caring for elderly parents.

Mr Bertrand said it was “going to be a big issue” for the current generation of working Australians.

“The risk there is that once they spend their savings helping out their family, the property market goes up so much that they might never be able to get into it again,” he said.

Those who don’t buy by their late 40s are likely to never afford a home, or will face indebtedness in retirement themselves.

This growing debt burden could derail hopes for a high standard of living in retirement, REST chief executive Damian Hill said.

“As the majority of assets for older working Australians are locked up in the family home, carrying mortgage debt into retirement can be a cause of financial stress for retirees,” Mr Hill said.

“While any debt they have is usually offset by savings in superannuation and other investments, it’s a good idea for people in this age bracket to try as much as possible to pay down this debt before retiring.”

This stark outlook for older Australians meant there would be significant pressure to downsize, LJ Hooker head of research Mathew Tiller said.

The LJ Hooker-Seniors Housing Online survey found more than a third of respondents had two spare bedrooms, while one in five had three or more unused rooms.

“We need to ensure that the older generation can release equity and are incentivised to release that equity, to ensure they’re not stuck in a home with a mortgage when they’ve finished work,” Mr Tiller said.

But while some retirees would be unwilling to downsize for “sentimental reasons”, others were deterred by the costs involved – including stamp duty.

Building suitable homes for these downsizers and providing some form of incentive to move would be beneficial, Mr Tiller said.

While retiring with a mortgage was a concern, Australian Housing and Urban Research Institute’s Curtin Research Centre director Steven Rowley said there were “plenty” of retired households sitting on substantial equity with small mortgages.

Any government intervention would need to be means tested to ensure it targets the appropriate group – such as those with significant mortgages to service but little equity, he said.

Research at Curtin University also found a quarter of retired households paying a mortgage. ING Direct research found retirees had an average of $150,000 in mortgage debt.

“The last thing a retired household needs is to be forced to sell and then pay even higher housing costs in the form of rent in a location lacking in the required support services,” he said.

“Any mortgage is going to prove a significant burden for a household on the aged pension. For those forced to retire early or who have had to increase the mortgage on their home to cover unforeseen expenses, the mortgage burden can be a real problem.”

Written by Jennifer Duke. First appeared on Domain.com.au.

Our Partners