Rethinking retirement: why ‘debt-free’ isn’t always the ultimate goal

This story first appeared on Citro where you’ll find more smart reads on money, health, travel and lifestyle.

For decades, Australians were told to aim for one big financial milestone by retirement: a mortgage-free home. But what if being totally debt-free isn’t the golden ticket to a good life after all?

By Bron Maxabella

We grew up on a steady diet of financial advice in the 80s and 90s, so we know the drill. You work hard, you pay down the mortgage, you avoid debt like the plague and you retire at 65 with a tidy home you own outright. Debt-free equals stress-free, right?

That neat little formula was baked into the Gen-X Aussie dream. The quarter-acre block, the barbecue, maybe the caravan, but absolutely the joy of knowing the bank no longer has a hold over you.

But here’s the thing: life has changed. A lot. We’re living longer, housing is way more expensive, and even the cost of a decent latte (a non-negotiable in retirement, surely) means it’s become a “sometimes food” rather than the everyday treat it once was. Which means clinging to the “debt-free at all costs” ideal could actually leave you worse off when you finally stop working.

Imagine this: you’re sitting in your beautiful, paid-off home, the kind your friends rave about. You’re the picture of financial success. Only you’re stressing about electricity bills, saying no to dinners out and counting the days until your next pension payment.

It’s the great irony of modern retirement. Many older Australians are “asset rich but cash poor”. They’ve got the house but not the income to actually enjoy it. And while it’s lovely to have the bank off your back, it’s not much comfort if you can’t afford to put petrol in the car.

This might help: The best fuel apps to help you save at the pump

Australians retiring today can expect a good 20-30+ years of active life ahead of them. That’s a lot of travel, golf games, yoga classes or long lunches with friends. And even more FOMO when you can’t afford any of it.

That’s because living longer means your hard-fought superannuation needs to last far longer too. Add to that the reality that currently only 30% of Australians are able to afford a retirement at or above the ASFA Comfortable Retirement Standard level. That’s estimated to rise to around 50% or more by 2050 – far too late if you’re in pre-retirement now.

So, the odds of many of us affording the retirement of our dreams based on superannuation and the Age Pension alone are very slim. Instead, we’ll be looking at ASFA’s Modest lifestyle choices, which include:

• Owning a cheaper, older, more basic car
• Limited meals out at inexpensive restaurants
• Infrequent home-delivery or take-away
• Infrequent leisure activities, like occasional trip to the cinema
• Limited budget for home repairs or household appliances
• Need to keep a close watch on all utility costs and make sacrifices
• An annual domestic trip or a few short breaks, no overseas travel

Now, I don’t know about you, but I’m finding little reward in any of the above after working hard for over 40 years and counting…

Here’s where the rethink comes in. Part of the reason – a big part – so many of us don’t have enough saved up for retirement after decades of earning is that a huge portion of those earnings was sunk into paying off a mortgage. Which is both a curse and a blessing, because the equity we’ve built up in that home just might be the ticket to a better retirement.

Equity release solutions, like those offered by Citro partner Household Capital, let you tap into some of the wealth tied up in your home without selling up. You stay living in the house you love, you maintain ownership and you gain access to money that can make retirement more comfortable.

This isn’t the same old-style reverse mortgage that got such a bad rap years ago, either. Modern home equity products are highly regulated, with consumer protections built in.

Here’s a radical thought: a bit of debt in retirement can actually be a good thing.

If it’s structured well and working for you, not against you, debt can give you flexibility and freedom. It could be the difference between scraping by and living life the way you want.

The traditional advice to be debt-free by retirement was well-meaning, but it was one-size-fits-all thinking. Today, retirement planning is about tailoring your finances to your goals, not just the other way around.

Do you want to travel? Help your kids or grandkids with a first home deposit? Make your house more age-friendly so you can stay there longer? Having access to cash flow makes those choices possible.

More on this here: 14 truly useful ways to use your home equity

Nan and John Poole joined the 66% of Australians who retire at a different age than they expected. John suffered a stroke and their retirement plans unravelled overnight. “We worked all our lives in our own businesses,” Nan says. “Everything we did was so we could have a good retirement and then, bang. Gone.”

The pair took out a Household Loan with Household Capital to upgrade their home to support John’s health needs and create a haven for their retirement. “We’re limited in where we can go,” Nan says. “But we’re very happy in the house. We’ve created a resort lifestyle at home.” You can read more of Nan and John’s story here.

Vivienne Cable also unlocked the equity in her home to have a better day-to-day lifestyle. “I never knew I’d feel such relief when that money came through,” Vivienne says. “It means that I can say ‘yes’ to a few more things, instead of ‘oh dear, wouldn’t it be nice…’. We work too hard during our lives to have to say ‘no’ all the time when we’re retired.” Read more of her story here.

It’s natural to be wary. “Doesn’t this mean the bank takes my house?” Nope. You still own your home.

“Won’t my kids get less inheritance?” Possibly, yes. But as many people discover, helping your kids when they need it (say, with a house deposit) can be far more meaningful (not to mention wealth-building) than leaving them the house decades later.

“Won’t the debt spiral out of control?” Not with modern products. Regulations mean lenders must ensure you can continue to live in your home for as long as you want and interest is carefully managed. Importantly, the no negative equity guarantee means you’ll never owe more than your home is worth.

If you’re considering equity release, here are some key questions:

• What lifestyle do I want in retirement?
• What are my big-ticket costs (travel, healthcare, renovations) and how will I fund them?
• Do I want to leave an inheritance, or support my kids now instead? Or maybe you want to do both?
• How much equity do I feel comfortable accessing and for what purpose?
• Have I considered how accessing equity might affect my Age Pension eligibility?
• Am I working with a reputable provider who explains the risks and safeguards clearly?

As with taking on any kind of debt, accessing home equity isn’t something you need to rush into. But it does make sense to be open to a new way of thinking.

Retirement isn’t a fixed destination, it’s a new open chapter. And in this chapter, clinging to outdated ideals about being debt-free might actually limit your happiness.

By rethinking the role of your home in your financial plan, you open the door to a richer, more flexible future. Debt isn’t necessarily the enemy: in fact, managed wisely, it can be the ally that lets you live the life you imagined all along – for as long as it takes.

This article contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs. Citro may receive a referral fee for products or services obtained through Household Capital.

Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.