Retiree property ownership is a hot topic as some older Australians don’t live in affordable homes. In fact, studies indicate that many retirees are either renting or paying off a mortgage. This added expense can increase retirement costs and erode the quality of lifestyle. But, forethought and a well-thought-out retirement plan can prevent this.
The Australian Centre for Financial Studies (ACFS) reports that around 15% of retirees 65 to 74-years are still renting. Plus, approximately 12% are paying off a mortgage. By the age of 75 to 84-years, this number declined to just 3%. Although, around 15% of retirees were still renting.
This data highlights that for some retirees’ affordable homes are a luxury. Especially when the cost, on average, to rent a home was around $12,000 a year. Consequently, this rate is around 40% of this group’s income.
Still paying off a home or renting when you are retired can reduce your cash flow. So, instead of being able to travel and enjoy retirement, you are stuck at home. Some retirees even have to work just to make ends meet. But, the good news is this does not have to be you. All you, and other potential retirees need is to plan for retirement so affordable homes secure your retirement.
While many Australians consider property as an asset, most do not think of it as vital to retirement. According to research data, the link between home ownership and retirement is made too late. Many people also do not think about their retirement quality of life until they stop earning a living. It’s something they push to the back of their mind, then wonder why they did not consider it sooner.
Another issue that the ACFS report highlighted is that many retirees felt obliged to help their children buy their first home. However, with homes being unaffordable, this added cost often depleted a parent’s retirement fund. This insight raises further debate over Australian home affordability, which currently focuses solely on first home buyers.
The report also noted that downsizing was another problem for retirees. While it sounds good in principle to buy a smaller home, the costs are profound. For instance, stamp duty, legal fees (conveyancing), and real estate agent fees all added up to thousands. So, many retirees were staying in their family home for longer.
Also, poor planning was not the only cause for a retiree not owning a property. In some cases, divorce, lower incomes or a poor education were to blame. Therefore, renting was a more affordable option. That is until the person retired and found it harder to afford the rent payments.
Financial planners suggest that you should be looking to pay off your home at least 10-years before you retire. To do this, you need to plan how you will reduce your home loan debt. An excellent strategy is to make extra home loan repayments or lump sum payments as the funds become available.
For example, let’s say your home loan repayment is $2,000 a month. Firstly, start paying $500 a week. This approach will enable you to make an extra monthly payment over 52-weeks. Then if you find you still have good cash flow, raise this by say $30 a week. If you find this comfortable, then raise your repayment by another $30 a week. Eventually, you will find the right balance for your budget.
Another option is to sell your unwanted items and to use this money to reduce your home loan. Lump sum payments can be an inheritance, the sale of a vehicle or even garage sale proceeds. Over time you’ll shave years off the term of your loan and save yourself thousands in interest.