More people are retiring with high mortgage debts, and the implications are huge. In this article, Mortgage Broker and Financial Planner, ROD LINGARD provides insight into how with some carefully designed forward planning you can avoid becoming a debt carrying retiree.
The number of mature-age Australians carrying mortgage debt into retirement is soaring.
It is becoming far more common for banks to request an ‘exit strategy’ when receiving loan applications from mature age borrowers. Quite rightly, the lending institutions are concerned that mortgage debt burdens late in working life may expose home owners to unwelcome risks, as health or employment shocks, which can ruin plans to pay off their mortgages.
What is an ‘exit strategy’?
Typically, the banks will want to have an understanding of what your financial position will be at retirement. They may consider your projected superannuation balance, the value of investment properties if you have them or, if you have a large home, it might be reasonable to ‘downsize’ into a less expensive dwelling. A further alternative might be working longer and delaying your retirement plans.
In her recent blog, Zoe Slater reported that financial stress is can have significant impact on peoples lives. It is reasonable to assume that the levels of financial stress will increase if mortgage debt is likely to impact on retirement plans.
This is where engaging a financial planner can be useful. A financial planner is able to perform some modelling to understand what your finances might be like by the time retirement arrives.
More importantly, a financial planner can model different strategies to determine the best approach. An added benefit is that, again with reference to Zoe Slater’s blog, the levels of stress are reduced significantly when people seek advice, and then follow throw and implement a plan.
What type of strategies are available?
One of the most common situations arises when a borrower finds themselves with a little extra cashflow. Should they use that surplus cash to reduce their debt, or should they consider using the surplus to increase their superannuation balance by way of salary sacrifice? Without some analysis, it is difficult to make an informed decision.
Selecting and implementing the right strategy could but you in a significantly better position, even if implemented later in your working life. It’s never too late!
Given that we have record low interest rates, if you expect that you might have outstanding debts at retirement age, it could be worthwhile to speak with both a financial planner to create a plan and mortgage broker and a to ensure you have the right loan to make the most of your resources as you heat towards retirement.
So what is the best solution to secure your financial future?
Sit down with a financial planner and create a plan that caters for your needs both in the present and into the future.
Rod Lingard is a Licensed Financial Adviser with Lifestyle Connexion and can be contacted on 0400 160 461. Financial Advice is provided by Rod Lingard – Authorised Representative No: 248734 of MASU Financial Management Pty Ltd | AFS Licence Number 231140 ABN: 78 069 358 498.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.