‘Out of reach’: Aussies saddled with debt in retirement

The cost-of-living crisis and soaring house prices means Aussies retiring in debt is becoming the new norm.

Older Australians face the unenviable position of retiring in debt and not having a large enough superannuation balance to pay it off and fund their retirement.

The Super Member Council says more than 40 per cent of Aussies approaching retirement still have a mortgage, and the figure is only going up.

Of those with a mortgage, more than 40 per cent of single households and a third of couple households would exhaust their entire superannuation balance paying off this debt, while about half of households would deplete more than 50 per cent of their superannuation balance.

Allianz Retire+ head of technical services Justine Marquet told NewsWire that one in two Aussies were now retiring with more than $200,000 in mortgage debt.

“The trend has been increasing and I think that we can expect that will continue. The proportion of people in debt, in mortgage debt at retirement, will continue going up,” Ms Marquet said.

Aussies look to take out longer loans

This problem of debt in retirement is only likely to grow, with Aussies willing to take out longer mortgage terms in exchange for cheaper monthly repayments.

Finder research shows one in three Australians would take out a 40-year loan if it reduced their monthly repayments to a more affordable level, even though it would cost them hundreds of thousands in the long run.

It would mean the average first-home buyer, at age 36, would still be paying off their home well into retirement or need to work longer.

It comes as housing affordability deteriorated to a three-decade low following the Reserve Bank’s barrage of interest rate hikes over 2022 and 2023 to stem Australia’s surging inflation rate post Covid pandemic.

Surging house prices have also played a major factor, with PropTrack data showing that between March 2020 and January 2025, property prices nationally grew 45 per cent. This means the median home now costs $769,000.

It is worse still for those living in Sydney or Brisbane, with the median home value setting Sydneysiders back $1,101,000, while those in Brisbane are now looking at paying $871,000.

Finder head of consumer research Graham Cooke said paying mortgages from now until 2065 had its pros and cons.

“Owning a home has felt out of reach for an increasing number of Aussies. A 40-year loan can help some buyers get into the market sooner by reducing monthly repayments,” he said.

“While these loans may have lower monthly repayments, they typically end up costing a lot more over time.”

The average Australian loan of $641,416 would drop by more than $300 a month in repayments on a 40-year loan compared with an identical 30-year loan.

But it would cost the borrower an additional $316,000 in interest payments over the life of the loan.

“Essentially, these loans give you a reduction in your monthly cost in exchange for a significant increase in the cost of your mortgage overall,” he said.

“Borrowing costs and house prices have combined to make the housing market less affordable for many Aussies.”

The Finder research comes a week after the Reserve Bank of Australia began its rate-cutting cycle, dropping interest rates from 4.35 to 4.10 per cent.

Australia's Cash Rate 2022

While the RBA did not stipulate further rate cuts, its forward estimates based on market expectations showed there could be a further 65 basis points in mortgage relief, bringing the official cash rate to 3.45 per cent.

Following the meeting, Reserve Bank governor Michele Bullock said she had received letters from struggling homeowners suffering through an extended period of crippling interest rate rises.

“I understand you are hurting, and I understand mortgage rates have increased a lot … but we need to get inflation down because that is the other thing that is really hurting you,” she said.

“If we don’t get inflation down, interest rates won’t come down, and you’ll be stuck with inflation and high interest rates.

“We have to be patient. I understand it hurts, but it’s really important that we get inflation down.”

According to Finder, four lenders offer a 40-year mortgage, with three of them offering it to first-home buyers exclusively.

What can Aussies do about it?

While a lot of Aussies will be unable to pay off their mortgage by the time they retire, there are options available.

Ms Marquet said it was important for Aussies to try to take control of their financial futures.

“Our population is ageing and there is no guarantee that in 20 years the pension will be able to keep up with cost of living,” she said.

“Once a person retires they are on a fixed income and it could be hard to find the extra money sources.”

This starts with planning, with even small contributions to superannuation likely to make a large difference in retirement.

Ms Marquet said Aussies should seriously start planning their retirement in their 50s while they still had an income and could make lifestyle changes and contribution to superannuation if required.

She did, however, acknowledge it could be a hard choice for Australians between the now and saving for the future due to cost-of-living pressures.

For those in debt in retirement, products such as an annuity can give a guaranteed amount of income for a person’s life.

Ms Marquet said “there are options and all is not lost”, suggesting Australians just “need to get more comfortable with using these products”.