The baby boomer bulge has had a major impact at every stage of their lives, including on their retirement years. Improvements in medical services and longevity means that people are living much longer, with healthier and more active lifestyles. The eight million Australians aged 50 and over now represent around one third of the population.
An ageing population also means a lower proportion of working age citizens paying taxes, and a higher proportion of older citizens drawing government pensions, needing access from the health system, and requiring aged care support.
Governments have planned well in advance for an ageing demographic, and the need to support older citizens. There has been a major shift towards more cost-effective home and community-based services and away from the more expensive provision of live-in residential care services, which is in line with community expectations and preferences.
Government subsidised services are targeting limited funding towards the provision of more cost-effective in-home support services, and residential aged care has become a last resort for end-of-life care and those unable to remain at home. Age pension eligibility age is rising as more people live longer, and citizens are incentivised to fund their own retirement years.
There are many implications for older Australians, involving complex financial and housing decisions for individuals to make at a personal level, which can be especially daunting. These decisions are arguably the most complex financial decisions people will make in their lifetime.
Compounding these impacts of an already ageing population is the more recent impact of COVID-19 and rising household debt. For many people, selling the family home and downsizing presents a logical solution. It can offer a better location, a more practical home and free up money to live on.
The Household, Income and Labour Dynamics in Australia survey, known as HILDA, is a well recognised national longitudinal study of Australian households. It is funded by the Australian Government and is managed by the Melbourne Institute, who publish the latest findings each year.
The HILDA survey shows that owner-occupier housing debt for older Australians has risen substantially. The proportion of households aged 65-74 with owner-occupier housing debt rose from 5% in 2002 to 14% in 2018, with 13% of older households also carrying credit card debt.
While the increase in residential property prices has driven an overall increase in home equity and personal wealth, it has also driven a trend to larger mortgages amongst younger baby boomers. Their parents’ generation paid off their mortgages and had the option of staying in the family home during their retirement years, but for those facing retirement with a mortgage, there is financial pressure to “downsize” – (or “rightsize”) - their home.
For those facing retirement today, this creates significant financial issues and the need for expert financial advice due to the complexity around age pension eligibility and access to superannuation savings.
For some, the COVID-19 pandemic has exacerbated income and employment insecurity, as well as any disadvantages in staying in their existing home, including the location, home maintenance issues and the distance from family and friends. Even a shift to remote working can change perspectives on the need to remain in the old family home.
A desired change in lifestyle after retirement may also make it more practical to sell up and move. A newer home near a beach or a golf course may be far more attractive when factoring in that the work and school commute will no longer need to be part of the daily routine.
Cashing in the home equity nest-egg can also release money to live on, to buy a new car and caravan or boat, travel overseas and even help the adult children buy their first home.
Combined with low interest rates until recently on savings means that expected income from savings is much lower than it was, while rising interest rates on mortgages will increase the financial pressure on those with larger mortgages.
At the same time, house prices have increased significantly during COVID-19, making this potentially the best time ever to consider downsizing – or “rightsizing” – the family home.
As the housing market softens due to economic volatility and unpredictability, who can blame the baby boomers rushing to sell their homes now before prices start to drop? No wonder ‘over 55’ and other properties well suited to retirement living are selling like hot cakes!