One in three Australians born between 1960 and 1985 believe they will still have a mortgage at retirement, while a quarter are unsure whether they will retire debt-free, new findings show.
The Citro/AMP State of Gen X Australia report found retirement is increasingly viewed with uncertainty as interest rates and high inflation bite into household wealth, even across different income levels.
Mortgage Choice broker Krystal Jackson says many Australians have no clear retirement strategy and are unsure how they will manage mortgage debt later in life.
“Most people aren't exactly sure how it's going to land,” Ms Jackson says.
But, seeking financial advice and planning for it now can avoid a mortgage burden in retirement.
Rising house prices, living costs and interest rates have made home ownership less affordable, and mortgage repayments more expensive.
House prices are driving extended mortgages. Picture: Getty
Many Gen Xers are buying property later in life because homes are dearer, or starting again after a relationship breakdown.
“To get the same kind of house they may have had to sell previously, they're paying hundreds of thousands more,” Ms Jackson says.
“I see a lot of people that are separated. They thought they were set, they separate, all assets are sold, and they feel like they're starting again often in second marriages, new relationships, buying again later in life, with a new partner.
“In essence they’re starting again. They felt like they were tracking well, and now they aren't, because often they've lost some super in the divorce settlement, and sold houses that they bought a lot cheaper. Now they're having to buy again at a much higher price, with a much larger mortgage.”
Many Gen Xers are also choosing smaller properties, the report shows, reducing their ability to downsize later.
“If they stayed in the family home they had in their first marriage, they could downsize and have all this extra cash flow available to them,” she says.
“But that isn't an option anymore, because that's already been sold and assets divided. Now they're buying smaller, so come retirement, downsizing is no longer an option.”
Others are relocating to more affordable regional areas.
Moving to regional areas is increasingly popular. Picture: Getty
Typically, mortgages run for 30 years. For borrowers entering the housing market at 50, a shorter loan term would ideally ensure their debt is cleared before retirement. However, current house prices and income levels often make that unrealistic.
“If someone aged 50 was wanting to buy a home, in an ideal world we'd just do a 15-year loan term, so we know that mortgage would be finished by the time they retire. However, affordability doesn't allow for that. We still can do a 30-year loan term, but we have to really define the exit strategy.”
Once a borrower reaches 50, banks pay closer attention to that exit strategy - how they plan to repay mortgage debt before retiring.
That might involve downsizing, moving to a cheaper area, or drawing on superannuation savings. However, relying on super to clear mortgage debt is not always ideal.
“That's a flawed situation, because if they use their entire super to finalise their mortgage, then what's retirement look like for them?” Ms Jackson says.
The ASFA Retirement Standard estimates singles aged 67 need $630,000 in super for a comfortable retirement, while couples require $730,000. Yet past AMP research found many Gen Xers are falling short.
Ms Jackson says uncertainty about retirement is felt particularly among self-employed Australians, many of whom do not contribute regularly to super and are “just living for now”.
“Most people I speak to don't have a solid plan,” she says.
Many Gen Xers are expecting to retire with mortgage debt. Picture: Getty
Living week-to-week while employed can also be a warning sign for future financial stress in retirement.
Many older borrowers also carry credit card and car loan debts, and are refinancing their mortgages to consolidate all debts into one loan.
For those worried about retiring with mortgage debt, Ms Jackson recommends seeking financial advice early and developing a long-term plan.
The first step is to understand what you want retirement to look like and how much money you’ll need for that lifestyle.
From there, borrowers can develop a strategy to reduce mortgage debt while continuing to boost super. For many, combining both strategies may be best.
A financial planner can help with salary sacrificing and transition-to-retirement arrangements to pay down your mortgage faster.
“It needs to be a long game, and something that is worked on and thought about a lot earlier,” Ms Jackson adds.
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