Between paying off the mortgage and helping the kids, Australia’s sandwich generation is more likely to retire with debt.

A recent survey indicates 1 in 3 working Australians aged over 50 are set to retire before paying off their mortgage, reducing the time their superannuation balances can be expected to last.

The survey, commissioned by REST Industry Super, also showed that nearly half of all respondents were set to retire with debt of some kind. The survey sampled 1048 Australians aged over 35.

Affording a comfortable retirement appears increasingly challenging for the sandwich generation – those aged between 50 and 65 – who are not only more likely than their parents to retire without owning their own home outright but also tend to be supporting their children well into adulthood.

“While our research shows older working Australians are expecting a relatively high standard of living in retirement, this expectation could be derailed by the growing debt burden, particularly when funds are being diverted to adult children,” REST chief executive Damian Hill said. “As the majority of assets for older working Australians are locked up in the family home, carrying mortgage debt into retirement can be a cause of financial stress for retirees. While any debt they have is usually offset by savings in superannuation and other investments, it’s a good idea for people in this age bracket to try, as much as possible, to pay down this debt before retiring.”

Address supply not demand

Hill said it was a major economic and social policy issue that whether or not someone owns their home remains the most important factor in how much they are likely to need in retirement savings, while younger people are also finding it more and more difficult to do achieve this goal. However, he emphatically rejected the idea that younger workers should be allowed to tap their super to fund their first home deposit, arguing that would only exacerbate the problem.

“Figuring out how we address the supply problem is the biggest issue, rather than focusing on measures that would increase demand,” he said.

Hill called on the government to consider measures to boost the supply of affordable residential housing, or make it a more attractive asset class to invest in for super funds.

“For example, the government could act as an intermediary and issue residential housing bonds that institutions could invest in,” he argued.

He said there were barriers that deterred super funds from investing in the residential property market directly.

REST is invested in residential apartment blocks in the United States, but does not have any residential property holdings in the local market.

“Residential property is not an institutional asset class in Australia, unlike in the US, where there it is an investible asset class for us,” Hill said.

One reason for this is the tax settings.

“There are tax advantages available to individual investors in the residential property market that are not available to us, notably the capital gains tax exemption on the family home,” Hill said.

Another issue that makes it difficult for institutions to invest in residential housing is that they are competing against individuals who bid up prices for emotional reasons.

“It’s just not a rational market,” he said.

Changing expectations

Hill said research showed younger working Australians are purchasing more expensive houses than older generations did.

“Younger working Australians are concentrated more around major capital cities in more expensive housing.”

He was concerned that while many people plan to retire later so they can pay off their debt while still working, this is not always possible.

“Delaying retirement is a good plan, but it doesn’t always work out,” he said. “We see many members who find that ill-health, losing their job, or the need to care for their ageing parents brings forward their retirement plans.”

All this comes as the lifestyle expectations people have for their retirement expand.

“Our survey showed that the current generation of older workers thinks they are going to need about $20,000 a year more to live on in retirement than the current generation of retirees,” Hill said.

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