Household debt wave poised to dampen Aussie retirement plans

Australians aged over 50 are expecting to retire with more debt than ever before, recent findings from AMP have revealed.

Namely, fewer than one-tenth of older Australians believe that they will have enough savings for retirement, with one in nine expecting to have more than $250,000 in unpaid debt when they retire.

This was partially attributed to Australians now living longer, with levels of outstanding debt on assets like the family home meaning many are facing a looming debt cliff once they hit retirement.

ABS data has shown that average household debt levels have quadrupled over the past 20 years for older Australians aged 55 and over, rising from $62,000 in FY03–04 to $242,000 in FY21–22.

Despite this, older Australians gave mixed responses concerning their willingness to potentially sacrifice lifestyle or comfortability to reduce such debt.

According to AMP, one-third of respondents were not confident their nest egg would provide an adequate lifestyle. Comparatively, over half were prepared to change their lifestyle to save more money in retirement.

Two-fifths of respondents went on to say that they would opt to sell and downsize to reduce their debt, echoing fears and concerns about not being able to afford a comfortable lifestyle in retirement.

As such, many older Australians are facing the reality of missing out on the financial security of owning their home when they retire.

AMP director of retirement, Ben Hillier said: “For as long as we can remember the Australian dream has been debt-free home ownership, which provides the financial foundation and security for a comfortable retirement.”

“Rising retiree debt needs to be acknowledged as an issue by industry, Government and regulators so that we can work together to provide Australians with greater financial confidence in their retirement,” Mr Hillier added.

While home values and super balances are increasing, he explained, this is presenting an evolving challenge in financial planning for retirement.

“Central to this is providing easier access to more affordable financial advice, which, encouragingly, is being addressed by the Quality of Advice Review.”

“Industry also needs to innovate to develop solutions which unlock the full value of a retiree’s balance sheet to maximise income, taking into account home equity values, superannuation balance and household debt,” Mr Hillier concluded.