The significant retirement cost awaiting more Australian homeowners

An increasing number of Australians expect to still be paying off a mortgage or renting in retirement, a new survey by superannuation provider Vanguard shows. The findings mirror trends revealed by the Australian Institute of Health and Welfare last year. The AIHW says homeownership rates are gradually decreasing among people nearing retirement. Since 1996, homeownership among 50 to 54-year-olds has fallen from 80 percent to 72 percent in 2021, according to Census data. The number of people aged 55 or older who are renting also rose from 17.5 percent in 1996 to 20.6 percent in 2021.

Vanguard’s How Australia Retires report shows nearly one in three working Australians today expect they will still be paying off their home loans in retirement. The expectation is higher among younger generations, with 45 percent of Gen Zs (aged 18 to 27 years) expecting to be doing so compared to 29 percent of millennials (aged 28 to 42), 32 percent of Gen Xers (aged 43 to 57) and 17 percent of baby boomers (aged 58 to 77).

Vanguard says almost one in five retirees today are renting and 8 percent are still paying off a home loan. The likelihood of retiring with a mortgage or renting is significantly higher for those who are not in a relationship compared to those with a partner, at 31 percent and 8 percent, respectively.

Achieving debt-free home ownership is especially important given so many Australians intend to remain in their homes as long as possible. The survey found 56 percent of retired Australians and 46 percent of workers want to remain in their family home for life and/or want to pass it on to relatives in their Wills. This suggests holding onto the family home in retirement is a priority, even if that means continuing to pay interest on debt.

Daniel Shrimski, Managing Director of Vanguard Australia, said housing tenure was a “sleeper issue”in retirement.

“Housing is either the largest or second largest asset held by Australian households, so it’s also one of the most important contributors to a secure retirement,” he said. “We tend to presume we’ll be homeowners and mortgage free – but having unresolved debt or needing to draw down on savings to pay rent is likely to be a big financial burden for many, especially if full-time paid work is no longer an option.”

Mr Shrimski said this is why it’s so important for Australians to prioritise superannuation savings, yet 49 percent of workers have not made additional contributions to their superannuation and 27 percent have no intention of doing so, despite the generous tax concessions available. The report also found less than one–third of workers felt confident in their understanding of superannuation.

Many Australians intend to use at least part of their super to pay off mortgage debt. The survey asked Gen Xers – the next generation to retire – about their plans to pay off their mortgage. About 38percent said they intend to keep paying their mortgage through retirement, while 25 percent intend to use their super to pay it off in one hit.