Easing the Stress of Mortgage Debt for Retirement

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Retirement is supposed to be the “golden years,” a time to reap the rewards of many years of working life.

But a new study shows that many older Australians are not enjoying their golden years as much as they could be or should be.

The Australian Housing and Urban Research Institute (AHURI) has found that many Australians are carrying the burden of mortgage debt, to the point of causing mental distress.

Stress in Retirement

study released in August 2019 by the AHURI, a national independent research network, has some startling findings with implications for retirement planning and financial planning.

The study found that almost 50% of Australian homeowners between the ages of 55 to 64 are still paying off a mortgage. That number was 14% just 30 years ago, when most people would pay off their home before they retire.

This study means that many Australians are, or will be, carrying an unsustainable mortgage debt into retirement. Several reasons could be the cause of that, such as high house prices, relationship breakdowns, or individuals entering the workforce later and purchasing their homes later in life.

The study also found that the stress of mortgage debt is having an impact on the mental health of older Australians. That debt stress leading to depression seems to be particularly prevalent among women.

It also means more people could be using their superannuation to pay off their mortgage, which in turn could put more reliance on the Age Pension system.

3 Considerations in Dealing with Mortgage Debt and Stress

If you understand the stress of mortgage debt, or you’re worried you could soon be facing this situation, now is the time to consider how to mitigate that stress. Here are 3 important considerations:

1. Everyone’s Situation Is Different

ZAs you plan for retirement, one of the decisions you may consider is paying off your mortgage. Many people wonder whether they should pay off their mortgage rather than focus on their super and retirement. After hearing the results of this report, some will decide that it’s best to pay off a mortgage.

But in reality, that isn’t always the best option. Everyone’s situation is different, because your mortgage may not be your only debt. As well, your superannuation may not be the only investment you have.

Your mix of assets and liabilities won’t be the same as everyone else’s, making your decision different than your neighbour or brother.

You also have other options, such as minimizing tax or creating a structure that allows you to save interest on your mortgage. And, determining how many years you have before retirement also needs to be considered.

There are always specific factors that determine whether paying off your mortgage should be your top financial priority.

2. Don’t Make Rash Decisions

Besides paying off the mortgage, some people consider other options to ease their financial burden.

For instance, selling the home to downsize and reduce mortgage costs, or pay off that debt, can seem like a good choice for those carrying a large mortgage. But for retirees, that can have an impact on your Age Pension entitlement.

That’s because your entitlement is based on the value of your assets as well as your income. If you sell your home, the proceeds may not be considered assets, but they could be considered income.

However, there are situations when you can make a non-concessional contribution to your super if you are over 65 and you sell your principal residence.

Others look to a reverse mortgage or home reversion scheme, whereby those over 55 release some of the equity in their home to access money. But that can bring about other long-term financial risks.

Any one of these decisions comes with implications that need to be carefully weighed, and a financial adviser should always be consulted before making any of them.

3. Seek Financial Advice

The best way to help ease the stress of mortgage debt, or ward it off, is to get help. You don’t have to navigate the difficult decisions of retirement, mortgages, superannuation and investing alone. A qualified financial planner will help you determine your retirement goals and achieve them.

That can include superannuation goals, determining your current state and where you want to be when you retire, those difficult options of paying off your mortgage or contributing to your super, and more.

Final Thoughts

ZThe results from the recent study into the burden of mortgage debt carried by Australians are startling. Many retirees have an unsustainable debt, putting a damper on their retired years and causing mental distress.

Seeking the help of a financial adviser at any stage of your retirement journey can help mitigate that stress, and make a plan for a stress-free end to your working days.

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