John Collett
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More baby boomers are carrying higher levels of debt than their parents at the same time of life and their adult children are staying at home for longer.
It is making it more difficult for them to save for their retirement. Indeed, indebtedness is widespread among adults of just about all ages, particularly after the age of about 27, the results of a survey on debt show.
The survey conducted on behalf of finder.com.au finds NSW residents are the most likely to say that they will never be free of debt. That is not all that surprising given the very high property prices in Sydney.
While 22 per cent of NSW residents said they will never be free of debt, the next most pessimistic were West Australians with 20 per cent.
Of course, debt is not a bad thing in itself. After all, who does not have to borrow to buy a house? But it is one thing to be in debt and earning an income and another to take debt into retirement.
It is often said that boomers have changed each life stage they have passed though. And it does look as if the younger boomers are redefining what it means to retire with more of them taking debt with them beyond their working years.
More than 60 per cent of boomers told the survey they are debt free. But that leaves a significant portion of boomers who have debt, many of whom are likely to be struggling with debt.
Michelle Hutchison from finder.com.au reckons Australians are generally too complacent about debt. That is even more so when it comes to the aim of being debt free by the time of retirement, she says.
It does seem that many people are simply resigned to being in debt without taking the steps needed be debt free by retirement, such as reducing their discretionary spending. Younger boomers are also going to be caught out by the tightening of access to the age pension, making it even more important to be debt free.
For one, they will have to wait longer for the age pension and the pensioner concessions that come with it. The qualifying age for the age pension is to rise to 70 by July 1, 2035. The increase will be phased-in. But very roughly, those aged about 50 now or younger will not be getting the age pension until age 70.
And in the May budget, the government announced plans, which have since been legislated, to tighten up the assets test for access to the age pension. From the start of 2017, a home-owning couple with $500,000 in assets, not including their home, will receive almost $2000 a year less in age pension. With assets of $600,000, the loss of the pension is almost $5800 because of the changes.
One obvious way to extinguish debt is to downsize from the family home in retirement. But there is a financial disincentive to do this. That is because any money freed up from the sale, after paying back debts, would be counted under the assets test for the age pension.
Sydney Morning Herald
