Nobody wants to be bothered by piles of debt in retirement. At ASAG, we support our customers by offering the ASAG Reverse Mortgage to help boost their income.
Retirement is one of those things people look forward to after a life of hard-earned struggles. The road to it, however, can be long and rough, incurring much expense along the way. This invites the question: Can you enter retirement without any debt?
Why do some Australians retire with debt?
A recent study of Census data from the Australian Bureau of Statistics, as reported in the Sydney Morning Herald, reveals some tidbits as to why some Australians retire but still have some liabilities in their ledger.
The Census polled homeowners between 25 and 54 years old, stretching from 2001 to 2021. Where the data in 2001 showed that 20 percent of the respondents attested they were able to own the home outright and fully settle their loans. That composition went down to just ten percent in 2021. When further segregated to people between 45 and 54 years old, the data noted 41.4 percent as fully paid their mortgages as of 2001 against 18.5 percent in 2021.
Further insights from a number of experts also noted that retirees or retirees-to-be tended to take out a reverse mortgage to aid their children with property acquisition. Pop culture such as home renovation or DIY shows even entice retirees to take out further loans in an attempt to improve their properties, but at the risk of lower equity and a new financial responsibility to settle.
Aiming for debt freedom before retirement is a long-term action, as the game plan must be in full play up to 20 years before the expected day you retire.
- Debt/budget data crunching. Start by cataloguing all existing money owed you have, then compare them against your existing cash flow. The analysis should reveal which one must be settled by priority while assessing how much money you have saved, whether in personal bank accounts or your super, plus other sources such as inheritances. Take the time as well to draw up a daily budget to maximise the money you have on hand while figuring out where to cut back and possibly free up more money to save.
- Settling debts. Once you have figured out the amount of debt you have, you can get down to business paying the accounts. However, great care must be made to avoid using the super to pay off the debts at retirement, especially when you have not yet reached eligibility for Age Pension. Debt consolidation can be taken as a last resort.
- Bolstering the super. Some retirement planners and financial experts can bandy about the possibility of increasing your super contributions, not just whatever your employer puts in out of your pay. Options on this front include government co-contributions, spousal contributions, and salary sacrifice for tax purposes. However, be aware of any contribution caps every year, and you can only put in super contributions until up to one month after turning 75 years old.
- Downsize. If your property is probably too big to maintain and your children have permanently moved out, you may consider downsizing your home. However, much thought should be given, as you also need to factor any activities you plan to undertake once you are no longer working.
In line with the above item on downsizing, any proceeds from the sale of your home can be a one-time super contribution. That can be up to $300,000 maximum provided the property is fully paid off. However, the seller must be under 60 years old and have owned the property as a primary residence for the preceding ten years.
No debts to hide from
If you are able to pay off debts before you retire, there may be a number of benefits to look forward to once you make that very last repayment.
- Destressing. Any debts are known to be a major trigger of stress, as you often think about how to pay them all off and ignore everything else. They also have the nasty effect of weakening your physical and mental health; for example, it’s not uncommon to hear of people who couldn’t sleep well at night thinking about the debts they still have. Being able to pay them off gives you a whole new feeling of relief, knowing you can go forward with nothing holding you back.
- Relationships. Settling all your accounts will help free up more resources and time to attend to your loved ones. How many times have we heard of families bursting at the seams because the parents have been more focused on work to make more money to pay the bills and the children are neglected in the process? Some couples believe that if they can work together to resolve their debt standing, that will strengthen their union. On another side of the coin, if your children see that you have been able to clear up your own arrears, both sides will have more peace of mind.
- Productivity. People who have successfully worked out their debt servicing as part of retirement can be a better colleague on the floor. With the debts potentially wiped clean, this enables a worker to focus more on the task at hand and contribute more to the organisation. It’s even well and good if the improved performance is rewarded with career growth and associated pay raise.
- Lesser strain on the tax system. To pay off all your debts is a big relief but do you know that it will also benefit the Australian taxpayer as well? In a The Conversation article from 2019, Curtin University economics professor Rachel Ong ViforJ and RMIT housing studies professor emeritus Gavin Wood revealed that up to 500,000 Australians at least 50 years old lost their homes during the 2000-2010 period because of high mortgages. As a result, they were forced to apply for rental housing assistance, which is powered by taxes. In many cases, retired tenants may never get out of the assistance package, if not working more to alleviate the strain.
The ASAG Reverse Mortgage
Nobody wants to be shackled down by piles of debt late in life. You have the power to eliminate them.
At ASAG, we support our Australian customers who are about to enter retirement or already in retirement by offering our equity release solutions, namely our reverse mortgage.
Using the ASAG Reverse Mortgage can help boost income in retirement. It allows seniors to access the wealth in their home without ongoing payments and having to sell. The loan is paid off when you permanently leave your home, either you downsize, move to aged care, or pass away. The funds you get can be utilised as you see fit, including Retirement Planning or any other objectives.
The ASAG team can assist you with more details on how our reverse mortgage works. Our lines are open on 1300 002 724 and at firstname.lastname@example.org so you can contact us or send your enquiries about our equity release solutions.
You can also do an assessment by using our free tool below to know your available equity.