With a growing number of Australians taking property debt into their retirement, are we risking our future financial freedom?
New research by ING Direct has revealed the number of over-65’s still holding a mortgage rising by 28 per cent in the last three years. Of these, 26 percent are investors while 74 per cent are owner-occupiers with an average debt of $158,000[1].
The latest figures from the Association of Superannuation Funds of Australia (ASFA) showing less than 20 per cent of singles and 30 per cent of couples over 65 have enough money for a comfortable retirement[2]. Not surprisingly, we often end up cashing in at least part of our super to pay off the bank, with 25 per cent using their lump sum to be mortgage-free[3].
Worryingly we’re also adding to the debt by dipping into our houses to cover spending and renovations, with around one in five older homeowners drawing on the equity in their homes to foot the bills in 2010 compared to 13 per cent in 2001[4]. While the repayment risk is typically lower for older people, divorce, illness or unemployment can all lead to missed repayments[5].
So what can you do to get rid of mortgage debt?
- Reduce voluntary super contributions and focus on clearing higher interest debts and making extra payments where you can.
- Save money now while you are working – it’s too late once you retire.
- If your payments are monthly, make them fortnightly instead – 26 payments adds up faster than 12. It’s also a good idea to keep payments the same even if interest rates drop and funnel any tax returns or pay rises into repayments.
- Check your interest rates and insurance policies. You can likely get a better deal with another lender.
- Invest in a financial adviser – $1,500 spent now is likely to save you many times that over a few years.
Taking a hard look at your finances now can go a long way to reducing your debts later – then you can start enjoying your retirement sooner.
Footnotes:
[1] ING Direct media release: ‘Australians’ growing property debt in retirement calls for super planning’ – June 22 2016 (analysis is based on ING DIRECT’s own customer base. ‘Retirement years’ considers those customers aged between 65 and 79.)
[2] Association of Superannuation Funds of Australia (ASFA) media release: ‘Reduced cost of living for retirees: ASFA Retirement Standard March quarter’ – June 2 1016
[3] Productivity Commission Research Paper: ‘Housing Decisions of Older Australians’ – December 2015
[4] Australian Housing and Urban Research Institute ‘Housing equity withdrawal in Australia’ – Issue 176 August 2014
[5] Australian Housing and Urban Research Institute ‘Housing equity withdrawal in Australia’ – Issue 176 August 2014
