Aussie boomers are often criticised for not downsizing, but there’s a good reason why they’re holding onto their big properties.
New data from the Regional Australia Institute shows that only 25 per cent of Boomers – aged 65 and older – are open to moving from a capital city to a regional area – the lowest of any age group. In contrast, 57 per cent of Millennials and 37 per cent of Gen Xers are more willing to make a tree change.
Selling a $2million home in Sydney could allow a couple to buy a $1million property in coastal towns like Port Macquarie or Coffs Harbour – leaving them with $1million in cash. But that windfall could affect their eligibility for the age pension due to the government’s assets test.
While the family home is exempt from the test, any leftover funds, whether held in cash or superannuation, are counted.
As a result, many older couples are choosing to stay in their large homes to protect their pension entitlements, despite no longer needing the space.
Financial adviser and author Helen Baker said older Australians are delaying selling their homes to ensure that they maximise their pensions. They usually only sell when they’ve run out of super and downsizing is their back-up option to release more cash.
A couple with $1million in cash, after selling the family home, could potentially put that money into super and live off an income stream known as an annuity.
But having access to the age pension, or a part age pension, can help with bills ranging from electricity to health costs, plus travel.
With the family home exempt from this assets test, financial adviser and author Helen Baker said many boomers are still delaying selling, even though they’re empty nesters
‘There are benefits in even getting a part age pension,’ Ms Baker said.
The Association of Super Funds of Australia says couples need $73,875 a year for a ‘comfortable’ retirement which includes an overseas holiday every seven years.
But with access to an age pension, it’s possible for those aged 65 to 84 to live on $43,753 a year.
When it came to younger Australians who don’t own a home Ms Baker, the founder of On Your Own Two Feet, suggested they consider purchasing an investment property with a friend or a sibling to at least get into the housing market.
‘I think the problem for younger people now is they don’t get in,’ she said.
‘It’s likely that property will continue to rise over the short-term, maybe, and even definitely the medium, long-term.’
Australia’s median capital city house price of $1.026million is beyond the reach of the average, full-time worker on a $102,742 salary.
That’s because the banks are reluctant to lend someone more than 5.2 times their salary before tax. This means an average-income worker would only be able to buy a $665,000 apartment with a 20 per cent mortgage deposit.
Only 25 per cent of Boomers – aged 65 and older – are open to moving from a capital city to a regional area – the lowest of any age group
Those wanting a house would have to do so with a friend or sibling if they weren’t married or in a long-term relationship, unless they were in a highly-paid job.
‘The nurses, the teachers, aged care workers, childcare workers, hairdressers, for these people, it’s incredibly difficult for them to purchase a property but those who are in more executive positions, or even tradies these days with what they’re earning, they have more of an opportunity,’ Ms Baker said.
‘Are they willing to make the sacrifices in other things that they’re spending their money on – to meet the obligations of their mortgage?’
The e61 Institute think tank said unaffordable house prices meant younger Australians were delaying key milestones like buying a house or starting a family.
‘Today’s young Australians are navigating a different economic and social landscape than the generations before them,’ it said.
‘While young people always face a degree of precarity as they transition into adulthood, there are social and economic changes, as well as changing preferences, that are pushing key life milestones – like buying a home, moving out of the family home and starting a family further down the track.
‘Today’s 25 to 34-year-olds have a lower home ownership rate compared to their parents when they were the same age – with this disparity greater in capital cities.’
This is also particularly the case for those unable to access the Bank of Mum and Dad to get into the housing market.
Many older couples are choosing to stay in their large homes to protect their pension entitlements, despite no longer needing the space
Millennials are increasingly relying on their boomer parents to set themselves up financially, including with that 20 per cent mortgage deposit.
Ms Baker said this was now the new divide between the haves and have-nots.
‘There’s a lot of talk about getting some early inheritance from the Bank of Mum and Dad,’ she said.
‘To me, this deposit for a house and buying a property, it’s become the new private school.’
Those boomers helping their children – by selling their family home – are also making a financial sacrifice by comprimising their ability to get the age pension.
Helen Baker is the author of Money for Life (Major Street Publishing)
