Retirement Debt

Posted by Jack Guthrie

Buying a home, paying off the mortgage and living happily ever after. This is the starry-eyed dream that the majority of home owners have at the beginning of their mortgage. Figures from the Australian Bureau of Statistics reveal that unfortunately this idea is becoming less and less of a norm in our country. Since 2002, the number of 65-year-old Australians with mortgage debt has tripled. With the average retirement age in Australia hovering around 60 years, this is a worrying sign for future generations.

Australians aged 55-64 (home owners preparing for retirement) with mortgaged debt has also grown substantially since 2002, moving from 23% to a current 47%. This signals a population that is now heading later into life with the burden of monthly interest payments, meaning our older generations are working with less expendable income to put away for a retirement plan. There are a number of elements that are contributing to this growing problem. But, a major question arises from this trend – How is this happening to Australians?

Relaxed Lending

Australia’s major lenders have held interest rates low for the last 5 year period. This is the result of the RBA holding the cash rate at a historical low of 1.5%. With loose lending standards for the majority of the period, it has been relatively easy for Australians to obtain and hold larger amounts of debt. With interest rates dipping low enough to make it under 4% in many cases, there has been major growth in the number of mature buyers choosing to invest, or upgrade to a more appealing residence.

Rising House Prices

Australia’s housing market has shifted dramatically from what it used to be, after a decade of strong growth post GFC. Capital markets such as Sydney and Melbourne have seen strong price growth since 2002. Consequently, loan sizes have become larger and require a longer time to pay off for the average wage earner. According to data presented by the ABS, the average loan size for an Australian borrower has more than doubled in the last 15 years.

Poor Financial Management

This is a factor that is on a more personal level and is something that comes along through the lifestyle of everyday Australians. The truth is that not all of us have a financial plan, or even an interest about finances. Many are generally apathetic about the balance of their mortgage, they leave the home loan humming along in the background of their finances and redraw to pay for lifestyle choices. Making the monthly payments becomes more and more normal, and as home owners get older the idea that they will “pay it off one day” gets less and less realistic.

Holding debt in retirement can be a detrimental financial situation. However, not all debt is bad. At Blue Wealth it is our aim to educate clients about how to use Australia’s ever-changing property market to their advantage. Leveraging debt through an analysed investment can aid everyday Australians to create strong and diversified portfolios. Ultimately allowing Australians to live more freely in retirement – rather than with a cloud of debt over their heads.

Posted by Jack Guthrie, on 30th Oct 2018