Working in retirement, reverse mortgages on the rise
Older Kiwis are increasingly concerned about being retired with mortgage debt and a high portion say that their mortgage status has impacted their decision-making, a recent survey shows.
A 2023 Working Seniors report commissioned by New Zealand Seniors among over 500 New Zealanders aged over 50 in January, found that while most would like to retire by 69 years of age, just 18% felt on track to meet this goal.
What’s influencing retirement decisions?
Conducted by research consultancy CoreData, the research findings showed that 78% were concerned about being retired with mortgage debt, and 76% felt their mortgage status had significantly impacted their retirement decisions.
Concerns around the rising cost-of-living, along with financial needs, were cited among the top reasons for delaying retirement.
Seniors@work founder and CEO Ian Fraser (pictured above left) discussed the research findings, telling NZ Adviser that people in the 50-plus age group were increasingly looking for options to fund their retirement.
Fraser, whose New Zealand jobs website caters to the 50-plus age group, said that having a mortgage was a key driver for continuing to work past the age of 65.
“More people in this age bracket are having to continue working…they need to use their mortgage and they need to keep on paying their mortgages a little longer than they thought they had to,” Fraser said.
While most people over the age of 50 said they would like to retire by the age of 69, only 18% felt on track to meet this goal, research findings showed. A further 27% believed they would need to keep working for longer to fund their retirement.
Findings also showed that 42% of working seniors had purchased and paid for their homes, and 22% expected to do so within the next 10 years. Half (50%) of working senior homeowners would consider accessing the equity in their property to help their children or grandchildren to get a head start in the property market.
While keeping their brain stimulated and being in the company of their colleagues were also motivators for Kiwis to keep working, Fraser said that the monetary reason was significant.
With interest rates having increased 12 times since October 2021, Fraser acknowledged that many retirees with mortgages were rolling off lower fixed mortgage rates this year and locking in higher rates, which may cost them anything from $200 to $400 extra per week.
“It’s a huge factor for them…they do need to keep on working because it makes such a difference to their living,” he said.
The average ‘ideal age’ to completely stop working was cited as 70 years among men, and 67 years among women. The key drivers for wanting to work past age 65 included enjoying work, maintaining a sense of purpose, followed closely by the rising cost-of-living and financial need, the report findings showed.
Are reverse mortgages a solution?
Based on anecdotal feedback from people over 50 looking for work, Fraser said downsizing and taking out a reverse mortgage were among the options that were increasingly being considered.
Heartland Bank general manager retail Keira Billot (pictured above right) said that the bank was seeing an increase in the proportion of customers using their reverse mortgage to repay traditional mortgage debt.
For Kiwi homeowners concerned about their finances in retirement, Billot said a reverse mortgage could be used to repay existing debt (such as a mortgage), to free up monthly income.
A second option is to downsize to a smaller, more suitable or manageable home, with lower rates and insurance.
“Proceeds of the sale can be used to pay off any outstanding debt and expenses, and a reverse mortgage could assist with funding the difference on the purchase price of the new home,” Billot said.
Over the March 2023 quarter, debt consolidation was the second biggest reason for Heartland Bank customers taking out a reverse mortgage, with over 42% using a reverse mortgage for debt consolidation, Billot said.
Research titled ‘Financing ageing in place’, conducted by Heartland Finance in Australia in partnership with RMIT University, showed an increasing prevalence in paying off existing debt, she said.
This reflected a growing prevalence of seniors entering retirement with outstanding home mortgages and other debt, and struggling to make ends meet with existing retirement funding sources.
Paying off debt was the second most identified purpose for loans taken over the full 15 years of the sample, surpassing home improvements, Billot said.
How are your older clients managing the cost-of-living and interest rate rises, and are you seeing an increase in demand for reverse mortgages? Share your thoughts in the comments section below.
