The Growing Debt Burden of Retiring Australians
Retiring with a Mortgage? How Housing Debt is Changing Retirement in Australia
Australia sits among the world’s wealthiest nations on a household basis. However, much of that wealth is concentrated in residential property. That concentration of illiquid wealth is creating complications as retirement approaches, particularly for those still carrying a mortgage.
Our analysis shows that a growing number of Australians are approaching retirement with larger mortgages than any previous cohort.
Home is Where the Wealth (and Debt) Is
Data from the ABS shows that while household wealth has grown, so have liabilities. Property debt is the key liability for most households.
This trend is changing the shape of retirement. Today, approximately one in every two homeowners aged 55 to 64 has outstanding housing debt, compared to fewer than one in six in 1990. For those aged 65-plus, 15% of households now still have housing debt—more than double the rate from 1990.
What has driven this? Our analysis points to house prices outpacing real income growth, increased refinancing and the use of redraw facilities, and a rise in later-life relationship breakdowns.
The 2020 Retirement Income Review noted that the median age for paying off a loan drifted from 52 in 1981 to 62 in 2016. This trend has not reversed.
Dealing with Housing Debt at Retirement
Indebted pre-retirees have three broad strategies for dealing with housing debt:
Delay retirement until the debt is extinguished;
Retire and continue to service the loan from retirement income; or
Find a source of capital to reduce or extinguish it.
Evidence suggests many retirees are choosing the third option by withdrawing superannuation lump sums to pay down their mortgage. ABS data from 2022-23 shows that property-related expenditure (paying off a home loan or renovations) accounted for more than one in every four super dollars withdrawn.
This strategy, while solving one problem, creates another. It reduces the income-generating capacity of the remaining superannuation, leaving many retirees "asset rich but cash poor" and heavily reliant on the full Age Pension.
Reframing Housing’s Role in Retirement
Given that households over 65 hold trillions in housing wealth, accessing some of this equity—instead of draining super—could lead to better retirement outcomes for those prepared to consider it.
The home equity release market has developed significantly. Options include the Federal Government’s Home Equity Access Scheme (HEAS) as well as various commercial reverse mortgage solutions. These products allow you to unlock capital from your home to improve your retirement cash flow.
Importantly, this market has matured, with significant consumer protections now in place, such as the "No Negative Equity Guarantee" for reverse mortgages. However, these are complex financial products that should only be considered after seeking professional legal and financial advice.
Planning for Your Retirement
Australia’s retirement system must cater to a diverse range of financial situations. For a nation where housing wealth is so significant, it is logical to consider the home as a tool for smoothing consumption and funding retirement.
If you are approaching retirement with a mortgage, or feel you are "asset rich but cash poor," it is essential to have a clear plan. A discussion with your financial advisor can help you navigate all five potential sources of retirement cash flow:
The Age Pension
Account-Based Pensions (from super)
Home Equity Release
Lifetime Income Streams
Non-super Investment Income
This analysis is key to structuring a retirement plan that is secure, sustainable, and meets your long-term goals.
Source: https://www.morningstar.com.au/retirement/growing-debt-burden-retiring-australians
If you are interested in learning more, give us a call on 08 7477 8252. Our Adelaide based advice team can help you create a long-term portfolio, to generate both growth and income for your future.
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