Australians are carrying significant mortgage debt into retirement because they are increasingly delaying major life decisions such as marriage, home purchases and even getting a full-time job.
On Monday, 18 November the Australian Research Council Centre of Excellence in Population Ageing Research (CEPAR) released a new report which seeks to explain why so many Australians are now entering retirement with housing debt. In 2016, about 36% of homeowning households still had a mortgage at the point of retirement (age 60-64), up from 23% a decade earlier.
The report finds that the situation can be explained by the fact that Australians are practising bulk procrastination and making practically every major decision later in life.
The report finds that, between 1971 and 2011, the median age at which Australians:
- Started their first full-time job increased from 16 to 25
- Finishing education increased from 17 to 22
- Had their first child increased from 24 to 31
- Married increased from 23 to 31
- Bought their first home increased from 27 to 33.
According to the report, these delayed decisions mean that the median age that Australians had paid off their mortgage has increased from 52 in 1971 to 62 in 2011 (and is likely to have increased since 2011).
In addition, the delayed decisions are continuing well into retirement.
For instance, the median Australian is now leaving the labour force at 64, rather than 61 in 1971, and entering aged care at 85, rather than 81 in 1971. Here's the data in chart form:
Rafal Chomik, a CEPAR senior research fellow at UNSW Sydney, said that while high house prices and overall reduced affordability was a factor in delayed home purchase decisions, people needed to be wary about taking forever to get into the market.
“Lifetime homeownership rates will decline if some people postpone purchasing a home indefinitely,” said Rafal Chomik. “Banks may be reluctant to lend past a certain age given retirement ages are increasing more slowly.”
Centre Director John Piggott, Scientia Professor of Economics at UNSW Business School, said that with the Australian retirement system built on the premise of homeownership, excessive or indefinite deferral of home purchase can have consequences.
“There is the potential that in the future more older people end up renting, and if so, we need a safety net to support them as the current retirement income system is failing renters,” he said.
The Downsizing.com.au view
This research brings a different perspective to the national debate about retirement incomes and indicates part of the problem is an emerging national psychology against taking early, hard decisions.
As the old saying goes ‘there is no time like the present’.
Australians need to be alert to, and wary of, this growing life decision deferral trend.
While it’s a bad move to delay buying your first home, it is an equally bad move to delay making a decision to move from the family home into more suitable and more lifestyle-rich downsizing-friendly accommodation.
Many Australians delay making a downsizing decision, and then find they are too old to move into a retirement village or land lease community and need to go straight into aged care. In doing this, they have missed the opportunity to live among a supportive community and access great lifestyle features and age-appropriate accommodation.
Indeed, research shows that moving into a retirement village community can extend life by five years.