The Great Australian Dream is to own one’s home. But increasingly, that dream is colliding with what’s been called the Second Great Australian Dream – to retire in comfort.
Matt Lawler, chief executive officer of Yellow Brick Road Wealth Management (YBR), says there’s growing evidence that Australians are taking out mortgages later in life, taking out bigger mortgages, and paying them off at an older age.
Lawler says it’s now not uncommon that the first thing a retiree does is use access to superannuation to pay off a mortgage. That has the effect, Lawler says, of undermining the retirement income system, and it’s an advice issue that needs to be addressed right away.
Lawler will be a panellist at the Conexus Financial Post Retirement Conference in Sydney on March 4, as part of a session on education and advice solutions. Other panellists are Michael Monaghan, managing director of State Super Financial Services; Matt Englund, managing director of Securitor & Licensee Select at BT Financial Group; James Grant, executive manager of wealth management for Industry Fund Services; and Lukasz de Pourbaix, general manager of investment consulting at Lonsec Research.
The conference is aimed at financial planners seeking insights and the latest thinking in crafting post-retirement solutions for a growing proportion of their client base.
Two dreams
“There used to be one Great Australian Dream,” Lawler says.
“There are now two Great Australian Dreams. We need to be getting Australians to think about those in parallel, not that I’ll deal with the other one later. They need to be thinking of those in parallel.
“There are some changing dynamics. People are getting mortgages later; they’re larger; and they last longer. Because of housing affordability at that young age, people are not getting into the mortgage market until later, but the mortgages are larger, and therefore it means they’re not paying it down until later.
“And we already are seeing the situation where the first payment from a superannuation payout is actually to pay off the remainder of the mortgage.
“If we play this out, is it [situation] going to get better or worse? It’s probably going to be the standard for many people – that hey have a loan until they are 65 and they’ll be paying that out as one of the first jobs they do with their superannuation money.”
Lawler says retirement planning has to take into account an individual’s mortgage situation, potentially ahead of superannuation, because if a significant part of a superannuation fund balance is used to retire debt, it has an undeniable bearing on an individual’s standard of living in retirement.
Real challenges
Lawler says this changing dynamic is a real challenge for financial planners and superannuation funds.
“Depending on the age of the member, they are going to have different priorities through different parts of their lifecycle,” Lawler says.
“This is why industry funds and other super funds get so frustrated that they can’t engage people. Part of it is that we need to actually be talking to an audience that thinks this is really important.
“When we’re dealing with people in their 30s, we know their order of priorities from a financial services perspective is their mortgage, some insurances, credit cards, and superannuation is a fourth order of priority. That’s not to say it’s not important, but in terms of their immediate priorities, then definitely those are the things that come up.
“Insurance brings the super conversation in, because you cannot do insurance recommendations without taking into account superannuation, because it’s going to be better to put a lot of their insurances through superannuation.”
