Think about what has happened in the six months since Treasury secretary John Fraser spoke of his concerns for retirement savings of parents who help their children into housing by making withdrawals from “the bank of mum and dad”.
House prices in Sydney and Melbourne have continued to accelerate and, anecdotally at least, so has parental financial assistance with their children's first home.
Fraser is worried that helping children into costly housing, as homebuyers or tenants, may inhibit their own abilities to save for retirement, including through their super.
Parents can find themselves trying to cope with something of a balancing act: trying to save to finance their own retirement and understandably wanting to help their children into the high-cost housing market.
It is difficult to gain other than an anecdotal impression of just how much parents nearing retirement or already in retirement are helping to finance their adult children's housing – particularly with that elusive deposit on first homes.
Clearly, a growing personal financial issue is whether parents can afford to provide this financial assistance given their circumstances.
Perhaps an appropriate starting point for parents is to realistically assess the adequacy of their retirement savings and overall financial position, perhaps with the assistance of an adviser who understands their family circumstances.
Much-publicised high levels of home ownership among older Australians can lead to inaccurate conclusions about the state of their financial wellbeing.
The Australian Bureau of Statistics reports that close to 80 per cent of households aged over 65 “own” their homes, based on the Commonwealth Census. However, these particular statistics do not make a distinction between “home owners” who own their homes outright and those with outstanding mortgages.
And the Reserve Bank observed almost two years ago in a submission to a Senate committee inquiry on home ownership that “older age groups are now less likely to own their home outright than in the past”.
The much-quoted retirement standard from the Association of Superannuation Funds of Australia (ASFA) – providing estimates of living costs for retirees to meet different standards of living – is calculated on the basis that retirees own a home with no outstanding mortgage.
Ideally, we would enter retirement as debt-free homeowners with sufficient retirement savings to finance a satisfactory lifestyle – with perhaps enough money left to assist our children into a first home.
There's much to think about before making withdrawals from “the bank of mum and dad”.
Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
25 April 2017
www.vanguardinvestments.com.au