Retirement is meant to be about enjoying long, carefree days by the beach and taking overseas holidays once every few years.
Because, unlike younger people, older Australians typically have lots of savings – and spare time.
And, after decades in the workforce, the final chapter of life is for leisure and doing the kinds of things that weren’t possible during a career involving long hours at work.
But unaffordable housing is threatening that retirement dream with a growing number of Australians still having a mortgage in their sixties – with the oldest members of Generation X turning 60 this year.
A house in a far, outer suburb of Sydney now costs more than $1million.
The average, new loan in New South Wales stood at $811,000 in December, reflecting a couple buying a big-city house with a 20 per cent mortgage deposit.
Since the early 2000s, house prices increases have typically been at least double that of income rises.
As a result, an increasing number of Australian seniors are approaching retirement age with a mortgage debt – but a superannuation strategist says it’s dangerous to think retirement savings can simply be used to pay off a loan.
Retirement is meant to be about enjoying long, carefree days by the beach and taking overseas holidays once every few years (stock image)
Unaffordable housing is threatening that retirement dream with a growing number of Australians still having a mortgage in their sixties (stock image)
The Australian Bureau of Statistics estimates 54 per cent of those aged 55 to 64 still have a mortgage – more than double the 20 per cent figure of the mid-1990s.
This is unsurprising considering Sydney’s middle-price house has gone from costing less than six times an average, full-time salary three decades ago, when Baby Boomers were middle-aged, to 14 times now.
This is likely to see a growing proportion of seniors use their superannuation to pay off the last chunk of their mortgage.
The family home, or someone’s principal place of residence, is exempt from the assets test linked to individuals qualifying for the age pension at 67.
Even so, MB Super’s chief strategist David Llewellyn-Smith tells me Australians relying on super to pay off a mortgage could rob themselves of an income stream during retirement.
This would be especially so if property prices fell and left them with little scope to sell and downsize to have money in the bank.
‘If you’re just using it as a way of speculating on the housing market, then that’s unwise because you will leave yourself asset rich and income poor at the time of life when you need the opposite,’ he says.
‘Indeed, if your speculation’s gone awry, and house prices have fallen, then you’ll find your retirement inhibited by a lack of capital and income so your living standards will plummet.
MB Super’s chief strategist David Llewellyn-Smith tells me someone relying on super to pay off a mortgage could rob them of an income stream during retirement, should property prices fall
‘When you get housing cycles, they tend to be much longer and larger so if you get caught on the downside of a housing cycle, you’ll feel it a lot more than a super cycle.’
Queensland senator Gerard Rennick, who founded his own People First Party after losing Liberal National Party preselection, says Australians should be able to keep using their super to pay off their mortgage and qualify for the age pension.
‘To me, owning your own home in retirement, if not throughout your working career, is of utmost importance,’ he told a Senate hearing this week.
Treasury secretary Steven Kennedy replied that Australians should be able to use their super to pay off their mortgage after they turn 60.
‘I don’t disagree with anything you just said, senator,’ he said.
‘I think it is important that people have that choice and I agree that people may want to take some of their super to retire debt-free.’
During the accumulation phase of super, you pay a 15 per cent tax on earnings.
But after turning 60, super earnings are tax free for retirement savings up to $1.9million if someone has stopped working.
Treasury secretary Steven Kennedy told senators this week Australians should be able to use their super to pay off their mortgage after they turn 60
The government, however, is concerned when super withdrawals exceed contributions because it means taxpayers will have to fund a bigger age pension bill.
Despite this, Dr Kennedy admitted Australians must have more choice during the retirement phase of super, including the ability to keep making big withdrawals to suit their life circumstances.
‘The superannuation industry, maybe this is a bit unfair, has tended to focus more on accumulation than offering the services and products they need to offer people in the retirement phase,’ he said.
‘We need to have to be very careful about any form of removing choice… I do wonder whether this is an area that at least some nudging is required to see people offered products.’
Compulsory superannuation has been around since 1992.
Employer contributions are increasing to 12 per cent on July 1, which means younger generations would, in theory, be enjoying more generous super savings.
The Association of Superannuation Funds of Australia recommends $595,000 for a comfortable retirement based on going on an overseas holiday every seven years and holidaying somewhere in Australia every summer.
But getting there is a challenge, with average super balances standing at $164,126, tax office data shows.
The warning is clear: raiding it to pay off a mortgage could leave you with little or nothing left to enjoy those twilight years.