The number of Australians reaching retirement with large mortgages is increasing. Many have been adding debt using the equity in their homes, rather than decreasing their debt as they age.
A recent study by the Australian Housing and Urban Research institute (AHURI) found an increasing amount of Australians over 50 are extending their mortgages rather than following past trends of down-sizing or selling up. The report showed 18 per cent of over 45’s utilised some or all of their equity in their homes in 2010 in comparison to only 13 per cent in 2001. The average borrowing was $40,000 per year. In addition, results displayed that the smaller percentage who do sell up are more likely to have succumbed to ill health, divorce or bereavement and used the money for survival rather than lifestyle.
So what is the debt being used for? The study has shown that the money is often used for private health insurance, private school fees, renovations or even computers, cars and holidays.
A 2012 report by CPA Australia found similar results of increasing debt for aging Australians and that compulsory super rather than being used to improve lifestyle in retirement is instead being used to pay off debt. For many, knowing that super will eventually be available is actually giving comfort to increase debt. What is being forgotten is if super is being used to pay out debts it leaves little left over for an enjoyable retirement.
No question, debt can be good, however without appropriate financial advice people can expose themselves to a lot of risk and many may go into debt without thinking about how it will affect their future.
Those who do seek professional advisers – both financial and mortgage, will have the benefit of careful planning and structuring which can minimise the risk of making unsound financial decisions.
With the right financial advice – they can have their cake and eat it too.
Tanya Sale is the chief executive officer of outsource financial. outsource financial work in partnership with legal firms, financial planners, accountants, licensed conveyance’s and other professional service groups who want to offer their clients a simple and cost-effective range of lending, leasing and asset finance.
Tanya is also featured in the No More Practice 30 Day Buisness Challenge. Register today for the ultimate business transformation experience.
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