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According to new research from investment firm Vanguard’s How Australia Retires report, based on surveys of more than 1,800 Australians, 48 per cent of Gen Z respondents and 37 per cent of Millennials said they expected to retire with a mortgage.
In comparison, 71 per cent of Baby Boomers owned their home outright.
Of those expecting to retire with a mortgage, 45 per cent said they expected to continue repayments in retirement, while 39 per cent expected to use superannuation to pay off their mortgage in one transaction.
“Higher housing costs, bigger debts and cost-of-living pressures are changing what retirement looks like, and what it will take to fund it,” Daniel Shrimski, Vanguard’s managing director, Asia Pacific, said.
“Younger Australians may accumulate larger super balances than previous generations, thanks to higher contribution rates and more years in the system.
“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.”
Mortgage decisions focus on today
According to John Ng, owner of Melbourne-based brokerage Money Jar Concept, younger borrowers understood the commitment involved in taking out a 30-year mortgage, but many were prioritising cash flow today over the longer-term cost of their loan.
“Many could see the long term cost of having a longer loan term, but many are more focused on day-to-day cost of living, so having more cash flow, and a longer loan term, sits better with them,” he said.
Ng said most younger owner-occupiers remained focused on paying down their debt, with interest-only lending generally limited to investors or borrowers facing particular financial circumstances.
“The only consumers who want an interest-only term are investors, or first home occupiers who are going through a tough time financially, or expecting a child soon,” he said.
“Most are mature enough and focused on paying down their debt, sticking to Principal and Interest loans.”
At the same time, Ng said he was seeing younger consumers take a different approach to building wealth, often through online platforms.
“I’m also seeing a lot of younger consumers making smart decisions to invest in ETFs through microinvestment platforms, potentially using this as a deposit for their homes, or continuing to keep them throughout their working lives, and using that to fund part of their retirement lifestyle,” Ng said.
The difficulty, however, was ensuring borrowers understood how their current financial decisions could affect their position decades later.
“The challenge is to raise awareness of how their projected super balance may look like in 30+ years’ time, as most of the consumers I work with, have no idea how that may impact their retirement,” Ng said.
Broker Daily has also reported on the inclination for Gen Z borrowers to consider rentvesting, as well as get information and advice from social media and artificial intelligence.
Financial literacy leaving a gap
While the results indicated that younger Australians remained pessimistic about paying off their mortgage prior to retirement, Ng said mortgages and retirement rarely entered the same conversation.
“First Home Buyers under 35 have almost no clue about retirement costs, nor super balance and their insurances within, and never think about them,” he said and noted that older first home buyers were more likely to put the two together.
“Universally, almost all consumers (more than 95 per cent) never bring up super or retirement when they reach out to me to talk about their first purchase, a refinance, an investment purchase, or debt consolidation.”
Vanguard’s study showed a relationship between age and financial literacy, with scores getting progressively higher as age increased.
Older men demonstrated particularly strong levels of financial literacy, with average scores exceeding 80 per cent from age 55 onwards and remaining above the overall population.
Retirement literacy followed a similar trend.
Overestimating costs
Ng added that in many cases, his clients overestimated how much they would need for a comfortable retirement.
“Many also overestimate how much they’d require at retirement, using their current living standards as a barometer for what their expenses may look like in the future,” Ng said.
“Often a young couple’s monthly discretionary spend could be reduced by up to 40 per cent easily, as the older version of you would be looking for quality, not quantity.”
Australians aged 18–44 also believe they will need a household income of more than $90,000 per year to fund their retirement, significantly above the Association of Superannuation Funds of Australia “comfortable” retirement benchmark for a couple.
Brokers part of the solution
While Vanguard found that 27 per cent of Australians were using a financial adviser such as a broker in an ongoing relationship to make financial plans for retirement, Ng said brokers could play a broader role in helping clients understand their longer-term financial position.
“I feel many brokers should use their life expertise and touch on more than just loans,” Ng said.
“We are writing more than 80 per cent of the loans out there now, and there’s a reason for this.
“Consumers want more than just banker-like transactional relationship, and brokers are already leading the charge.
“Consumers want to work with someone who ‘looks’ like them (in my case, family man with kids) but also understands money matters.
“Brokers need to find a niche, for consumers to see how they may benefit.”
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