The risk of rising retiree debt

For as long as we can remember, the Australian dream has been debt-free home ownership, often referred to as the fourth pillar of retirement, as it helps provide the financial foundation and security for a comfortable retirement. However, the growing number of Australians retiring with household debt leaves more retirees exposed to interest rate fluctuations and remains an obstacle to financial security.

New research from AMP has shown that nearly nine out of 10 Australians aged 50 and over expect to still be paying off their mortgage once they retire[1]. One in nine also believe they will have over $250,000 in unpaid debt when they retire, and one-third are worried their superannuation will not provide an adequate lifestyle.

These findings parallel data from the Australian Bureau of Statistics (ABS), which found that average household debt levels have quadrupled over the past two decades for Australians aged 55 and over. According to the ABS, household debt grew from $62,000 in the 2003–04 financial year to $242,000 in the 2021–22 financial year[2].

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.

Looking at recent research, conflicting trends regarding retirement confidence[3] have emerged. A recent report from TAL and Investment Trends reported that Australians are more optimistic about how they will fund their retirement despite inflation and rising interest rates. Meanwhile, the 2023 MFS Global Defined Contribution Survey contrastingly found that inflation continues to erode retirement confidence, with over 60% saying they will need to work for longer and 40% no longer seeing themselves retiring at all.

While the loss of retirement confidence in Australia is in line with global peers, it also highlights the role that effective advice can play in helping investors meet their retirement objectives.

The earlier you can develop positive money habits and engage with a financial planner, the more confident you can be in retiring debt-free so you can enjoy life on your terms.

[1] https://corporate.amp.com.au/newsroom/2023/december/majority-of-homeowners-face–debt-cliff–heading-into-retirement

[2] https://www.abs.gov.au/media-centre/media-releases/average-household-debt-grows-73-cent

[3] https://www.moneymanagement.com.au/news/financial-planning/two-sides-retirement-confidence-coin

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