Average retiree debt now $158,000

Many older Australians are failing to pay off their homes prior to retirement and, as a result, face the prospect of living out their end-of-work days with a mountain of debt still to repay.

According to research by ING Direct, in 2015, thousands of Australians aged between 65 and 80 owed an average on $158,500 on their mortgage.

The increase may be blamed on the rising cost of housing, as well as borrowers buying their first houses much later in life – some maybe too late. The average age of a first home buyer is now over 31 years of age, meaning it’s more likely that they’ll retire in debt.

“We’re seeing more Australians carrying over into retirement with debt,” said ING Direct’s Tim Newman. “If you buy in your mid-30s it’s likely you’ll still carry debt when you retire … people are borrowing more at a later age.”

What is concerning to Mr Newman is that people borrowing so late in life may not have truly considered how they will pay back their loans, which may mean that downsizing to release equity is the only way to repay debt.

Another way Australians heading towards retirement may choose to clear debt is to use a superannuation lump sum to pay an outstanding mortgage, which could put increased pressure on our Age Pension system.

Although housing prices may be partly to blame for debt, there are also many Australians who, according to Curtin University’s Bankwest Curtin Economics Centre associate professor Rachel Ong, “dip into their housing wealth to meet spending needs”.

“They typically do this through the use of financial products that allow them to withdraw equity from their home by increasing the mortgage debt secured against the home,” said Ms Ong.

According to the Association of Superannuation Funds of Australia (ASFA), single retirees will need $23,651 per year to live a ‘modest’ lifestyle, with couples requiring $34,064 to do the same. Whilst this figure takes into account home maintenance, improvement and insurance, among other things, it does so assuming that the home is fully paid for. So for retirees who rent, or who have large debts, living comfortably, or ‘modestly’ in retirement becomes a difficult proposition.

The research underlines the importance of sound financial planning at all stages of life, but with the Australian financial planning industry currently lacking sufficient credibility, once again, the risk of funding your retirement is all yours.

Are you still repaying a mortgage? Or are you debt-free? Do you have any tips for people who may be in debt?

Read more at www.domain.com.au

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