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Australians preparing to retire with record debt levels, longevity fears

Nearly nine in 10 older Australians believe they'll still be paying off a mortgage when they retire, and most are preparing for lifestyle downgrades, as new AMP research shows rising household debt levels are threatening the "Australian dream".

Older Australians are approaching a “looming debt cliff” and will retire with unprecedented levels of debt, new research shows, starkly illustrating the challenges facing increasing numbers of retirees and the pressing need for more accessible financial advice.

In a survey of 1,000 Australians aged 50 or older on their attitudes on retirement, AMP found nearly nine in 10 believe they’ll still be paying off their mortgage when they retire, and more than half are preparing to adjust their lifestyle to be more frugal in retirement. One in three respondents are not confident their retirement nest egg will be adequate, and one in nine expect to retire with more than $250,000 in debt.

The research reflects the rising cost of living and inflationary pressures Australians are coping with, AMP said, and it’s consistent with recent ABS data showing a four-times increase in household debt over the last 20 years for those aged 55 and older (see chart). The financial services giant also cited the national housing affordability crisis as keeping many older Australians from the financial security of owning their own home in retirement.

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

    “While home values and super balances are increasing, research shows that more and more Australians will be retiring with increasing levels of household debt, leaving more retirees exposed to interest rate fluctuations and presenting an evolving challenge in financial planning for retirement.”

    Other findings from the survey include that fewer than one in 10 older Australians expect to have sufficient savings to retire on, while more than two in five would downsize to reduce their debt. But three in five believe staying in their home is more important than having a higher retirement income.

    The higher debt levels are especially concerning given that Australians are now living longer in retirement than ever before. According to AMP, this conundrum is prompting many to sacrifice a better retirement lifestyle over fears about longevity and being able to make ends meet.

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

    He also called for industry solutions to “unlock the full value of a retiree’s balance sheet to maximise income, taking into account home equity values, superannuation balance and household debt”.

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