Money in retirement
Money in retirement
No doubt about it we are all going to get older and our financial circumstances will change.
There is something different happening though in relation to this, that we are currently seeing in the industry.
Over the years, what has transpired is that we have seen an increased number of Australians reaching retirement with mortgages that were unheard of in our parent’s days.
Research is showing that rather than decreasing debt as they age, many older Australians have been using the equity in their homes just as they would an ATM machine.
A study by the Australian Housing and Urban Research institute (AHURI) found an increasing amount of Australians over 50 are extending their mortgages rather than following past trends of down-sizing or selling up. The report showed 18% of over 45’s utilised some or all of their equity in their homes in comparison to only 13% a decade earlier. Even more interesting is the growth was highest for people aged 55 and over.
So the question would have to be “what the heck are they spending their money on?” Well here it is … Private health insurance, private school fees, renovations, computers, cars, holidays and other “lifestyle” expenses. Yes there are children crying over lost inheritances all over the country tonight.
ING Direct released data in 2016 that stated the amount of Australians 65 years and over still with a mortgage has risen by 28% in the previous three years. Additionally of those retirees with a mortgage, 74% of them were still paying off their owner occupied home.
A report by CPA Australia found similar results of increasing debt for aging Australians and that compulsory super rather than being used to improve lifestyle in retirement is instead being used to pay off debt. For many, knowing that super will eventually be available is actually giving comfort to increase debt. What is being forgotten is if super is being used to pay out debts it leaves little left over for an enjoyable retirement.
Having mortgage debt close to retirement can be a risky game. Life can present unforeseen changes and having a sizeable mortgage leaves little room to manoeuvre if unexpected events present. For example a divorce in later years may lead to selling a property to pay out the debt which may leave little for either party to purchase another property. Even without an unexpected event occurring, people may find themselves in a position where they may need to make hard decisions about where they are going to live in retirement as there is nothing in their price bracket in the areas they were once living.
Mortgage brokers will no doubt come across clients who may wish to take the risk of going into debt without thinking about their future.
The good news is research shows that many clients when taking a mortgage are open to discussing their overall financial needs so brokers are in a good position to encourage clients to consider options that will help protect their future.
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