Boomers spending kids’ inheritance

Baby boomers are spending about $1 billion of their children’s inheritance every year by gradually cashing in the equity in their homes, says new report.

happy couple

Baby boomers are spending about $1 billion a year of their children’s inheritance by gradually cashing in the equity in their homes through reverse mortgages, according to a new report from independent data and analytics company Illion.

Mortgage Nation: The Great Australian Debt analyses the banking and mortgage records of almost five million Australians, making it one of the “most detailed and credible in the country”, according to Illion.

“While Australians aged over 71 years have $30.1 billion in home loan debt,” the report says, “$2.6 billion of this has occurred in new loans over the last two years alone.

“For a typical 25–30 year loan, this means these new 70-year-old-plus mortgage holders will need to work until 100 years of age before paying off their mortgage entirely.”

However, the report says it’s more likely that asset-rich and cash-poor baby boomers are converting equity from their homes into cash for a better lifestyle in retirement.

“Known as ‘reverse mortgages’, the debt is taken out of their estate when they die,” it says. “What this essentially means is that at the current rate of new borrowings, baby boomers are spending $1 billion or more every year of their children’s inheritance.”

The report notes the rise of asset-rich, income-poor retirees who bought a ‘cheap’ house many decades ago, but in retirement have inadequate superannuation savings. More and more of this cohort is now drawing on this equity.

It also notes the growing influence of the bank of mum and dad. “It is likely is that some baby boomers are putting their names on mortgage documents to act as guarantor to their children – giving rise to the ‘Bank of Mum and Dad’ – and in some cases, even the ‘Bank of Grandma and Grandpa’.”

In YourLifeChoices 2019 Retirement Matters Survey, 72 per cent of the 4315 respondents said they intended to leave an inheritance.

In the same survey, 85.4 per cent said they would not consider taking out a reverse mortgage on their property.

The Illion research (graph above) found that Australians aged between 30 and 50 have the biggest mortgages, dispelling the myth that first-home buying millennials are the most disadvantaged generation financially.

“Despite the widespread belief that first-home buyers in their 20s with small deposits are the most indebted group in the country, it is actually generation X, aged between 30 and 50, which is enduring ‘peak debt burden’,” said Illion CEO Simon Bligh.

“On the other hand, baby boomers are spending up to $1 billion a year of their millennial children’s inheritance.”

Surprisingly, older men are continuing to pursue the great Australian dream of home ownership well past the traditional retirement age of 65. In fact, a staggering 27 per cent of all mortgages in the over 70 age group are for single males, the report says.

Mr Bligh said Australia’s property market was worth a staggering $6.6 trillion, easily outstripping the value of the $2.9 trillion compulsory superannuation system and the $2.2 trillion share market.

“Australia’s property market is crucial to the economic prosperity of Australians,” he said.

“However, our homes are among the most expensive in the world, with Sydney and Melbourne ranking in the top five cities globally for housing unaffordability.”

Australia’s population of 25 million people live in 10.3 million homes, worth a collective $6.6 trillion.

The country is building about 180,000 new homes a year, or 15,000 a month.

Of these properties, six million have mortgages against them, worth a collective $2.1 trillion. Key findings included:

  • Relationships, or friendships, remain the most popular pathway to home ownership in Australia, with three in every five home loans owned jointly by a male and female.
  • Almost 40 per cent of mortgages have been taken out by a single borrower. Twenty-one per cent are single males and 16 per cent are single females.
  • Sydney is the female financial liberation capital, with five of its suburbs having the highest rates of single female home ownership of anywhere in the country.
  • In comparison, the top five Australian suburbs where men go solo are shared between Perth, Sydney and Melbourne.

Do you have a reverse mortgage or are you considering a reverse mortgage? Are you surprised by the number of older Australians who have taken out reverse mortgages?

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COMMENTS

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tams
26th Feb 2020
9:25am
“Known as ‘reverse mortgages’, the debt is taken out of their estate when they die,” it says. “What this essentially means is that at the current rate of new borrowings, baby boomers are spending $1 billion or more every year of their children’s inheritance.”

This statement is grossly overstated. The total drawdown on reverse mortgages, home reversion schemes and any other form of seniors equity release is $4000-420m per annum
johnp
26th Feb 2020
10:43am
Maybe I am backward or something but dont understand " $4000-420m per annum"
Mariner
26th Feb 2020
11:00am
Ditto me.
Karen
26th Feb 2020
12:06pm
Maybe 400-420 - less than half the stated billion.
Dave H
26th Feb 2020
9:35am
What are they talking about it is not the kids inheritance it is their money . The baby boomer worked hard for the money they have all rights to spend it on themselves. enjoy do what ou want and if there is any left the kids might luck
ceejay
26th Feb 2020
10:42am
Agree Dave. Until we die, our kids are not entitled to anything. This sense of 'entitlement' to Mum and Dad's hard-earned money seems to be pervading society. Our Last Will and Testament states how we want our assets to be distributed. Unfortunately the current laws allow family and others who feel 'entitled' to make a claim against that Will, meaning the wishes of the newly deceased person may not be respected. Most baby boomers have worked really hard for what they have, with home ownership the pinnacle of goals. They've gone without 5 bedroom 3 bathroom houses, new cars and top of the range furniture and annual overseas trip to achieve that goal. They were lucky to have a camping holiday to the beach for a week or two each year. If they choose to downsize and spend the money enjoying their final years or accessing great health care, that's their right. The kids should only inherit if the parents wish them to.
Anonymous
26th Feb 2020
11:40am
Dave, it would only be the adults that were spoilt as children with such an attitude.

I bet those same adults/children have never helped their parents out during times of need.
Mac
26th Feb 2020
12:00pm
Agree Dave. My children are better off than my husband and I were when we were their age. I did not expect anything from my parents as I knew they grew up during the war and worked hard during their lives and went without.

My children and their families have had more holidays, seen more shows, eaten out more frequently than I have ever done in my entire life. On my low income, it is hard enough to save up for a holiday these days considering the increasing cost of travel, accommodation and the everyday living expenses of utilities, rates, food, petrol, maintenance repairs, etc. not to mention health insurance and health rehabilitation costs.
hyperbole
26th Feb 2020
12:09pm
Totally agree with you Dave. Those words jarred with me also. It is our money and we will do what we wish with it until we depart this mortal coil. I read where one man told his daughter that he and the wife were thinking of buying a four wheel drive and caravan and doing the grey nomad thing....reaction from daughter "you are spending my inheritance". That was a red rag to a bull..the father bought the best outfit he could afford.

There is no way breathing this household is going to begrudge ourselves a thing now..we have what we want and spend what we want. There will always be something left and whoever gets it ought to be grateful they got anything.
KSS
26th Feb 2020
12:43pm
My thought entirely. Calling it 'spending the kids inheritance' shows just how entitled people have become.

Spend away I say. You earned it! If there is anything left bequeath it where you wish. Until then the kids can keep their fingers to thenselves.
Hasbeen
26th Feb 2020
1:13pm
One of my kids came back & had over 2 years free accommodation & electricity in my self contained granny flat, a long while after they had left home. Another is getting the same for over 4 years, & is still there.

I think the pair of them have had their inheritance already, so I am wondering if I should shout myself an XK150S Jaguar, an E type, or a yacht.
Sceptic
26th Feb 2020
2:57pm
Agree 100%. YLC should be ashamed of putting such a header on any article.
Farside
27th Feb 2020
1:42am
some sensitive types on here ... nobody disputes it is the boomers' choice to spend their wealth however they see fit but the fact remains money spent is not available for inheritance when the boomers shuffle off this mortal coil. Life is too short to be among the perpetually offended over something so trite as phrasing.
hyperbole
1st Mar 2020
10:58am
Farside, he problem is the "expectation" that kids have today.
Captain
1st Mar 2020
11:19am
My siblings and I said to our parents that they should spend the money they had accumulated during their lifetime, and spend it they did!! We were left with a house in the country (more than 30 years ago) and a small bank balance. Split between 5 of us it was not much, however the money that I received went straight into our superannuation. None of us complained that there was not much inheritance.

Now our three children say to us spend your money that you accumulated, however they will be very happy to inherit whatever is left. Hopefully they will put that money into something that will continue to be a growing asset. Perhaps a third generation of asset accumulation whilst still having fun in retirement.
Hoohoo
1st Mar 2020
6:11pm
This is just another example of creating the generational divide. We're idiots if we fall for it.

Most of us did it hard when we were young - like everyone else. Nowadays, there is a REAL DIVIDE between haves and have nots, whether they are young or old.

Remember, we had free university education and cheap rents while we saved up for a deposit for a mortgage.

I agree - there are many people who feel entitled to things, and they are both young AND old people.
Farside
2nd Mar 2020
12:10am
Hyperbole, if kids today have unrealistic expectations (yes. it's a sweeping statement) then who is at fault – them or the parents that raised them to have the expectations?
patti
26th Feb 2020
10:13am
If you are fortunate enough to have a house which can be used for a reverse mortgage, then using it to raise capital for home maintenance - as I have had to do - is a godsend. Otherwise we'd be living in unsafe houses, or having to sell at a loss and then cast ourselves upon the rental market - a prospect too awful to contemplate. And the house tends not to depreciate in value so it's a good way of surviving when the pension is all the income you have.
ceejay
26th Feb 2020
10:44am
Agree Patti. It's the older person/s choice.
Anonymous
26th Feb 2020
11:42am
patti, your children never made the purchase and paid the house off, so that makes it yours, not theirs.

I bet they don't share their assets with you.
Colinus
26th Feb 2020
10:17am
We constantly tried to get my father to travel Australia in his later years. It was something he had always talked about but never did. We have warned our kid's there will be the house when we die, but very little money. We intend to travel Australia and the world for as long as we are healthy enough to do so.
Mariner
26th Feb 2020
10:50am
Well do it sooner than later. My father always wanted to travel the Trans-Mongolian- Siberian Railway, talked to Mum about it but not too me. Would have taken him along when I did. People have wishes but always seem to wait till it is too late. Leaving the kids the house is generous.
Anonymous
26th Feb 2020
11:44am
Colinus, put your travel on hold while this Coronavirus is sorted out.
hyperbole
26th Feb 2020
12:11pm
were going on a cruise but holding off now. have always told people if going on cruise get a balcony because if you get sick or something like coronvirus happens you are stuck in an inside cabin with no windows at all....I would go nuts. well worth the extra money to have access to open balcony and fresh air.
Mariner
26th Feb 2020
12:49pm
@hyperbole - always book a balcony cabin ourselves, we like fresh air, been round the world in balcony cabins, cost almost twice as much as an inside but then how many times do you do cruises like that?
Horace Cope
26th Feb 2020
10:41am
"Do you have a reverse mortgage or are you considering a reverse mortgage? Are you surprised by the number of older Australians who have taken out reverse mortgages?"

To answer the questions put, we do not have a reverse mortgage nor do we plan to take one out and, hopefully, will not need to take one out in the future. The second question is really none of my business.

The group of current retirees grew up in a different world to their children. A lot of us had to leave school early because further education was not able to be financed by the family. It was also accepted that parents would try and leave something for their children when they passed away. Retirees, in a lot of cases, have been able to support their children through higher education, cadetships or apprenticeships to give them a better start and the sacrifice of parents was at that stage in life. Now it's our time and we can choose to spend our savings or deal with our assets in a way of our choosing. Sure, this is a generalisation but the fact remains that we are the first generation to not worry about leaving something for our children, hence the SKI trips. We are living longer and if our children haven't attracted some assets by the time we go then they will probably splash their inheritance against a wall so why shouldn't we do it for them.
ceejay
26th Feb 2020
10:50am
Agree Horace, that by the time we meet our maker, a lot of our children will be in the 'grey brigade' too. If they haven't amassed sufficient assets then by hard work and good savings, it is likely they would blow this 'entitled inheritance' very quickly. Yes, a lot of us have spent a fortune supporting our children through higher education and often, bought them their first car, paid for study related trips interstate and overseas and then provided the deposits for their homes. Most of us did not have these supports or opportunities. Now we have the time and hopefully the money to enjoy what so many of our younger folk take for granted.
Mariner
26th Feb 2020
10:56am
Reverse mortgages only work in salubrious suburbs in capital cities. No chance for us country town dwellers.. We downsized before pension age so we had spending money to see the world - no complications with pension considerations. I was afraid that large houses would some day be included in the asset test.
Gra
26th Feb 2020
1:59pm
Spot on Horace. The things some Baby Boomers go without so they can leave a decent inheritance to their kids apart from the house are just the things their kids will spend up on, new cars and overseas holidays.
Lyn
26th Feb 2020
10:58am
Also and importantly many of the Baby Boomer generation is financially helping their children get a deposit together for a house. Our parents didn’t have the finances to do it for us as many didn’t have superannuation. We worked hard and saved to get where we are in older age. We all have to struggle .... that’s life.
Anonymous
26th Feb 2020
11:46am
Spoilt children became ungrateful, selfish and demanding adults.

Many Babyboomers help out their parents too.
Hoohoo
1st Mar 2020
6:19pm
Many younger people help their parents, too. You can't make sweeping statements because it isn't the case across the board.

I too, think spoilt people become ungrateful, selfish and demanding. If we don't have to work hard for something, we never understand the sacrifices made to achieve something good. But we had plenty of opportunities like free university education, fulltime jobs for life and cheap rents while we saved for a deposit for a mortgage. It is SO DIFFERENT for young people these days - don't ignore the problems they face. These problems are very real.
retvilldotnet
26th Feb 2020
10:59am
Interesting how so many state that they wouldn't take out a reverse mortgage on an asset with the capacity for capital growth, yet so many of them will downsize into a retirement village and see the capital base disappear over there period of occupancy. Then becoming increasingly dependent on the taxpayer to fund in-home or residential aged care. The government and the aged care royal commission turned their back on examining this aspect of funding for aged care.
Hoohoo
1st Mar 2020
6:21pm
A very interesting point of interest, retvill.
Karen
26th Feb 2020
11:00am
*laughs* It's not their 'children's inheritance' until those children inherit it - and it is the inheritance right of the 'boomer' to spend his/her money in any way he/she chooses... that's his/her inheritance from a lifetime of often hard work with scarcely any of the fine 'conditions' applying today.... and coincidentally building this modern Utopia of a society along the way (along with government installed faults such as permanent unemployment etc - NONE of which are the fault of the Boomer).
Karen
26th Feb 2020
11:03am
As for reverse mortgages - wouldn't couch one with a moonshot length barge pole. It's another form of 'eating your equity' - self-cancering the equity in your life that you've generated through decades of effort in countless ways.

Only a well-off person would consider it the 'duty' of the peasants to eat their own homes in this way, the well-off person not being affected, of course.
Mariner
26th Feb 2020
11:19am
A well-off person would not have to look over the shoulder at C/Link to consider pension payments.
KSS
26th Feb 2020
12:51pm
"to eat their own homes"... seriously?

Who cares as long as you get lunch and don't go hungry? Its not like you will need it after you're gone. The kids can have the crumbs that are leftover after you have eaten.
Karen
27th Feb 2020
12:09am
You do not understand what is this 'allegory'? Hokay ...
older&wiser
26th Feb 2020
11:32am
This makes me angry - we are not spending the kids inheritance, as though it is a god given right us seniors have to leave them something. What ever any senior has is THEIRS, to do with as they wish. There is absolutely no obligation, necessity or requirement to leave anything to the kids. Or to anyone.
If you want to spend your money any way you want, then do so, without guilt. I am sick of being put on this guilt trip because we own our home, or have worked our butts off and have some savings, so can enjoy what we want to do.
If I could, I would do my absolute utmost to ensure I spend my last dollar the day before I am put in the box.
Farside
27th Feb 2020
1:52am
and nobody is disputing it is your right to "spend my last dollar the day before I am put in the box". It is clearly your choice whether to spend the inheritance, give your assets away, bequeath your estate to the cat society or leave crumbs for your family.
Sundays
26th Feb 2020
12:25pm
I’m surprised at the number supposedly taking a reverse mortgage. I would only consider one if there was no other choice, certainly not to fund holidays etc. like others, I resent the idea that we are spending the kids inheritance. Gone are the days when retirees spent their final years sitting in front of the TV. I won’t be made to feel guilty for enjoying the rest of my life while health is good. The kids will get the house if they are lucky.
hyperbole
1st Mar 2020
11:00am
If I was a single person no dependents low on funds but had my own home I would reverse mortage...who cares when you die what is left...spend it on yourself
Veritas
26th Feb 2020
12:56pm
I'd rather leave a healthy and sustainable planet to the next generation. Who cares about reverse mortgages when history is judging this generation for what it does or doesn't leave for those in the future.
Gra
26th Feb 2020
1:51pm
Shame eh but what I have earned and saved doesn't become my childrens inheritance until the wife and I pass on. I worked and saved so the wife and I could enjoy my retirement , do some travelling both here and overseas. We have during that time helped our kids out financially. I wonder how many retirees are taking reverse mortages so they can help these ungrateful millenials (the Me Me Me brigade)
Hoohoo
1st Mar 2020
6:33pm
The kids would be better off helping their parents keep the equity in the home they home to inherit, by paying the rates for the parents, for example.

Real estate is the best way to increase wealth, in the long term. It's also the only way to get a foot into the real estate market, especially in big cities. To save up a deposit of $200,000 is nearly impossible, which is the 20% deposit needed to avoid mortgage insurance in Sydney, on average.
Sceptic
26th Feb 2020
3:22pm
It only becomes a kid's inheritance when you die. until then it has nothing to do with the kids and certainly not something that they own or have an entitlement for.

26th Feb 2020
4:11pm
What's the problem? Baby-boomers earned their wealth. They can do with it as they see fit.
Curious
26th Feb 2020
4:50pm
It is a typical mentality of reporters these days. Blame it all to the Boomers to keep the intergeneration war on. Why don't we look at it from the other side of the coin? Who creates these reverse mortgage products, the government, the big banks, the big end of town corporations? These fanciers designed these products in order to put their greedy hands on the senior citizens' nest eggs. Why don't reporters tell the truth that these products are snatching from the younger generation of their inheritance? The truth always hurts, doesn't it? Fake news is at work again!
Mariner
26th Feb 2020
6:04pm
The reporters are among the ones waiting for the their oldies to drop off and leave them a packet. If you look at it this way it makes complete sense to read all that shite about us spending our money instead of crawling into a corner to die.
Fess44
26th Feb 2020
5:21pm
What inheritance? It's my money. The bank of mum and dad has already come to the rescue more than once.
heyyybob
26th Feb 2020
8:21pm
I'm well and truly a 'Baby Boomer'. Raised three children with knowledge and the guidance on the importance of carefully building A Future for themselves and their families. Hey, guess what ?? All three have done just that and they and their families are enjoying the benefit. What the Hell is this 'Kids inheritance' you speak of and who the Hell invented the concept ??
SusieQ
26th Feb 2020
9:42pm
I have commented on reverse mortgages some years ago. Saying don’t.well finally we sold our house unfortunately it didn’t increase in value the end result was . 11 years off reverse mortgage borrowed $60.000 paid back $140.00. Yes we used the $60.00 but if we had continued we would have ended up with nothing. So be warned. We cannot buy another home so have to look at alternatives. We were lucky the interest rate was low.
Dorliz
27th Feb 2020
3:01am
It's our money
Veritas
27th Feb 2020
8:27am
Spend, spend, spend and live it up. The COVID-19 pandemic is estimated to infect 70% of the world's population, which means those over 60 should splurge like there's no tomorrow.
Farside
28th Feb 2020
5:44pm
no problem if there is no tomorrow but if you splurge and do not succumb to COVID-19 or something else, then you are broke and feeling sorry for yourself for your remaining days
heyyybob
27th Feb 2020
10:00am
..
Mariner
27th Feb 2020
5:22pm
Say something man!
Hoohoo
1st Mar 2020
6:35pm
That's not a man. It's a gorilla.
jaycee1
28th Feb 2020
9:58am
Excuse me, but I object to that heading!
Until you die it is NOT your children's inheritance. It is YOUR money to make YOU'RE life as YOU want it! If you don't leave anything to your kids then so be it.
Let them work for what they want/need, just like we had too!
Suze
2nd Mar 2020
12:29pm
Totally agree jaycee
Hoohoo
1st Mar 2020
6:01pm
I think these terms "spending the kids' inheritance" and "this cohort", referring to reverse mortgagers, have been deliberately chosen to create the reaction is has here.

I am in the lucky position not to have children, so I'm not tempted by the guilt trip. Then again, I have a hungry nephew sniffing about! He's already taken everything he can from his parents and siblings.

However, I do have sympathy for younger generations who don't have the same opportunities as we did for steady, full-time work and cheap rents until we saved for a deposit for a house.

When I was a child there was only one student in my class whose family was rich enough for overseas holidays (she's an amazing woman now and I'm still very good friends with her). But nowadays, there's such a huge gap in socio-economic situations. Now there's a distinct group of haves and have nots and huge pressures on parents to make sure their kid has a mobile phone and an iPod and the latest computer games, otherwise they are outcasts among their classmates.

I agree, young adults feel entitled to a whole lot of stuff we never had (and still don't) but I blame our society that is addicted to consumerism and never-ending economic growth. Young people are the victim of this and it is our generation that created this new status quo.
Hoohoo
1st Mar 2020
6:09pm
This is just another example of creating the generational divide.
We're idiots if we fall for it.
Most of us did it hard when we were young - like everyone else.
Nowadays, there is a REAL DIVIDE between haves and have nots, when they are young or old.
Remember, we had free university education and cheap rents while we saved up for a deposit for a mortgage.
IO agree - there are many people who feel entitled to things, and they are both young AND old people.
Jezemeg8
1st Mar 2020
8:32pm
I'm sorry but I don't believe that anything is wrong with retirees living the life they've worked hard for after retiring. If that means their children receive less than expected as an inheritance, then too bad! Everyone is entitled to spend what they've worked hard all their lives to have. Most have supported their children, now those children are grown and should be earning their own income, not eyeing off their parent's 'wealth' as theirs!
Hoohoo
2nd Mar 2020
12:21pm
There is nothing wrong with retirees doing whatever they want with their money.

The only problem is that older people often own more than one home because they couldn't resist the benefits of negative gearing when they were earning lots of money and wanted to reduce their tax. This has made it harder for first home owners to even enter the property market because they are competing with people who already have equity in other properties. It's not a fair system. Imagine having to save a 20% deposit (that's over $200,000 on average for a house in Sydney)! Even harder to do when your savings capacity has already been dipped into by compulsory Superannuation!

Most baby boomers have helped their children in this area, but only those who are wealthy enough to do so. No wonder so many young people have given up on ever owning a home. I understand why they figure their best option is to enjoy life while they can - travel overseas and go out for coffee and smashed avo on toast.
Davo
2nd Mar 2020
12:26am
Inheritance was originally for the eldest son to take over the farm or estate, and look after his elderly parents when we had multi-generational households.
We now have a situation where our children have much more wealth than we ever had at their age, My son expects nothing as he will be at least 60 years old or more when I shake off this mortal coil, he always says "You earnt it, You spend it" :)
Hoohoo
2nd Mar 2020
12:31pm
And where are all these children of baby boomers expecting to inherit everything from their retired parents? Most of them eat out and travel overseas themselves, so they don't blame their parents for wanting to do the same.

I call this article BS. Sure, there are some children who feel entitled but I think this is a beat-up. It's exactly what politicians do - they try to divide us so come election day, they pull some strings to turn us against each other, with no intention of changing policies or even creating policies. It's all about winning the election, not leading our country.

I'm so tired of people falling for it. The politicians are counting on people to be either stupid, forgetful, afraid, greedy or desperate. Let's smarten up next election.
Argydubbaya
2nd Mar 2020
12:32pm
Aren’t we a sad bunch? We point this way n that blaming different issues for being poor old agers. If we just realised the only blame can go to greedy and unaccountable governments, those we trusted to look after us, but it’s too late now, fiscal policy written by theives and spent on what ever whims took their fancy. Surreptitiously moving our contributions around while we worked hard to save for our futures, Then there were those that lived day to day spending all their pay, partying and new cars. Put some aside for a rainy day? Who is being penalised? The savers!
Now the government wants to stop us all from withdrawing OUR money from a bank? Time to march to Canberra and camp alongside our courageous indigenous people.


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