Advice on servicing a mortgage during retirement will become a key part of practitioners’ work, according to a Colonial First State (CFS) report that noted increasing numbers of people are ending employment before they have paid off their home.
The most recent CFS “Rethinking Retirement Report” showed the top priority among 2250 Australians surveyed was to retire debt-free and that 28 per cent of respondents aged between 50 and 64 approaching retirement still had a mortgage, while 14 per cent of retirees were still paying off a loan.
Looking at the impact of financial advice, without it only 45 per cent of seniors felt confident about retiring debt-free, but this increased to 63 per cent after they sought professional advice.
CFS head of technical services Craig Day said many retirees stated they planned to delay their retirement date until they paid off their mortgage, while 15 per cent indicated they would use a lump sum from super to pay it off.
“For those who don’t get to choose when they retire, one option is to use a lump sum from your super to reduce or pay off your mortgage,” Day said.
“The other option is to continue paying your mortgage in retirement using the income from your super, such as an account-based pension.”
He added people who decided to use their super to service debt usually compared the mortgage rate with expected investment returns from their fund and if their net super earnings were lower than their home loan interest rate, they could withdraw a lump sum to pay their mortgage off or place it in an offset account.
“If the net earnings within super are more than the home loan interest rate, you may be better off maintaining your existing income stream and home loan balance,” he said.
“However, many people may not want to bet on future investment returns and would prefer the peace of mind of being debt-free in retirement.
“In these circumstances, using your super to pay off your mortgage will reduce the amount of assets you have available to fund your retirement and could result in you receiving less retirement income or your super savings not lasting as long.
“On the flip side, using super to pay off your mortgage could potentially increase your age pension entitlement as it would reduce your assessable assets.
“There is no one-size-fits-all approach to retirement. Getting advice about your unique circumstances from a professional adviser will give you the confidence to make the right decisions towards achieving a debt-free retirement.”