December 30th, 2021 by igniite

Will you have a mortgage still when you retire? Read this.

Not so long ago, retirees were cashed up empty nesters offloading their debt free family home, to move to the country or coast. A generation ago most Australians owned their home outright.

While rising house prices are pushing home ownership out of reach for younger generations, retirees are increasingly leaving the workforce with a mortgage on their home.

Between 1990 and 2015 the percentage of 55–64-year old’s who owned their home outright fell from a whopping 70 per cent to 47 per cent.

High home prices mean many people need to delay entry to the property market, as they save for a deposit, leaving fewer working years to pay off the loan.

I recently had a confronting discussion with a friend of mine who was late 50’s. She was newly divorced and had to navigate the property market again as a single. My friend was musing around the idea of how she would ever afford to pay her home loan off, $540,000 in 15 years.

Here were some of our brainstorming ideas:

1. Pay her home loan off with her super balance.

Her super balance was healthy, having worked professionally for decades. The primary residence is exempt from assets tests in Australia, but superannuation is not. This seemed like a good idea to use some superannuation to pay down or off her mortgage once she retired.

2. Live abroad and rent her house out for a few years. (I am serious)

Many people are peripheral with their vision, of how retirement should look. Not Me. I am thinking more like Eat, Pray, Love or Shirley Valentine or maybe Lost in Translation here. The numbers seem to work sometimes and they did for my friend. We may have spent so many years of our life, in a hand full of suburbs, diligently raising children, attending Sunday morning football or after school swimming. Monday to Friday on the work grind.

Retirement is the time for us.

We studied the rental market locally and agreed that she could probably rent out her home for $900 per week and this would increase in 15 years’ time. Let’s assume in 15 years’ time a 50% increase in rent rises (this is conservative) to $1350 per week.

If nothing changed, her mortgage repayments would still be $450 per week, therefore she would net $900 per week in the hand to live on. Not a bad return for an overseas adventure.

The trick is to be careful where you seek your adventure. I am thinking Bali or Malaysia deserve some investigation. As a very general rule both, will set you back roughly $500 per week in living costs (but do your own research) for a comfortable lifestyle. (Let’s also increase this living cost, by the same factor applied to your rental income for completeness. Let’s say $750.)

If you follow the logic, my friend will have $900, in 15 years to spend and only need $750 (on your overseas retirement adventure) leaving $150 to stash away for retirement when she returns home.

3/ Pay her home loan off with her super balance and live overseas for a few years.

Using the same figures above my friend will now have income of $1350 and only need $750 for living expenses in Bali or Malaysia. This will leave her with $600 per week spare or $31,200 per year or nearly $100,000 in three years.

It’s not a million dollars, but it may financially support a retirement dream,

for the wild hearted.

This information is, general in nature and for information purposes only. It is important to do your own analysis, based on your own personal circumstances, before making any financial decisions. We do not know you personal financial details and we suggest you consult with a financial adviser for your own specific financial needs, regarding any information that you find on this website.

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