Young Retirees Face Mortgage Debt

More than a third of Millennials and nearly half of Gen Z Australians expect to retire with a mortgage, raising concerns about larger superannuation balances potentially being used to pay off housing debt rather than funding retirement income, according to a Vanguard report.

Mortgage Debt in Retirement: A Growing Concern

In stark contrast to the 71% of Baby Boomers who own their homes outright, a significant proportion of younger Australians expect to enter retirement still tied to mortgage repayments. Among those who expect to retire with a mortgage, 45% plan to continue making repayments, while 39% intend to use their superannuation to clear the debt.

Another 16% plan to sell their homes to repay the mortgage, and 14% are unsure how they will manage their debt. Changing housing conditions are altering the financial demands Australians could face later in life, said Daniel Shrimski, managing director of Vanguard Asia Pacific.

Why this matters: Higher housing costs, bigger debts, and cost-of-living pressures are changing what retirement looks like and what it will take to fund it, according to Shrimski. Younger Australians may accumulate larger super balances, but if a greater share of those savings is needed to pay down housing debt or cover ongoing housing costs, the boost to retirement income may be smaller than many people expect.

It also raises an important question: how will Australians fund the dignified retirement they’ve worked hard for if a significant portion of their super is needed to pay off their home?

The nationally representative survey of more than 1,800 Australian adults also found younger people expected to require substantially more income in retirement than older Australians currently reported receiving. Australians under 45 estimated they would need more than $90,000 a year, compared with around $60,000 reported by Australians aged 65 and over.

Housing status was also associated with retirement confidence, with outright homeowners reporting the highest confidence, followed by mortgage holders, while renters recorded considerably lower confidence.

The housing divide formed part of a broader gap between the retirement expectations of working-age Australians and the experiences of current retirees, with differences in expected retirement ages, income requirements, and the ability to keep working. Planning remained a significant issue, with 45% of working-age Australians reporting they had no retirement plan.