Baby Boomers are spenders -- that's how we've lived our life. Boomers like Fraser and Fiona Anning are guilt free, as they enjoy spending their kids inheritance.
I don't think we're selfish, there's no crime in looking after yourself and making sure you have a good lifestyle. We've worked hard, the couple said.
But not all are scrambling their nest eggs -- many pensioners and retirees are turning to reverse mortgages -- and it can be a financial disaster. A lot of people, particularly Baby Boomers, borrow money in the wrong manner against the properties they've got and quite frankly, if anything goes sour, they lose their home, said Tom Bain from Spending The Kids Inheritance.
Some borrow against their home to maintain, even improve their lifestyle; others are simply trying to make ends meet.
Ruth Riley's ageing parents took out a $144,000 reverse mortgage on their very humble home, with Bluescope Finance a year ago. When Ruth's father died, she asked Bluescope for the payout figure and was shocked to find it was $45,000 more than the original loan. I knew they'd be some exit fees but I didn't think it would be that much, Ruth said.
On the other hand, Percy Ohrling couldn't be happier with his situation. He reverse mortgaged his home -- he got $31,000 off ABN Amro. It was enough to pay off his small remaining mortgage and to take a trip back to Sweden to see his family. I am getting old now and I don't think I would be able to do another trip you know because of the money, Percy said.
The other advantage is by putting off paying back the loan until he passes on, he has more spending money to enjoy his life. There's still plenty of inheritance in the house if you like. $31,000 is not that much and it's not going to go up that much over the next three or four or five years or however long I live, Percy added.
It's no joke when things do go wrong though, says University of Western Sydney Economics Professor, Steve Keen. For a start a reverse mortgage gives the bank a big say in what happens to your home. Those terms are things that most people who take these out, wouldn't be looking for -- like maintain the drainpipes, they suddenly don't do it the banks got a reason to say we're shutting the loan down and bang you don't have a loan anymore, you've got to sell the house to finance the debt you've got, you've consumed the money you did have and you're homeless, Steve said.
He argues the whole reverse mortgage proposition relies on house values continuing to rise. But if we have a drop in house prices, the whole equation collapses. The bank can go bankrupt and the family can get nothing out of the asset sale -- that's the real danger, Steve added.
Last year the reverse mortgage market went into fast forward, growing by 2% to a total of $2.5 billion, and Tom expects more Baby Boomers will turn to reverse mortgages. To support what they want to do in the latter years of their life and they've lost all else to do it, this is a way to do it, he said.
But he's uneasy about it and believes a better option to access some cash is to sell up and downsize.
Demographer Bernard Salt says a recent study shows Australian Baby Boomers are world champions when it comes to leaving little behind. The bottom line from this study is that the children of the Baby Boomers will get virtually nothing on the death of the Baby Boomers, Bernard said.
But relying on reverse mortgages is a trend we can do without says Professor Keen, who'd like to see them outlawed. The danger of allowing them is that you set the whole economy relying on something that can't possibly be sustained indefinitely and therefore you'll have a crisis, he said.
Ruth is dealing with her mother's crisis right now and wishes she had understood the potential problems beforehand.
The industry association for reverse mortgages is called Sequal -- Senior Australians Equity Release. While reverse mortgages can work well for some, Choice Magazine has calculated a reverse mortgage of just 15% of a house's value can chew up the other 85% in less than a decade -- so it really is worth looking into very carefully.
For more information on reverse mortgages you can go to the website of Sequel at www.sequal.com.au
Spending Kids Inheritance or SKI Club website is www.skiclubaustralia.com.au
Choice Magazine online at: www.choice.com.au