How to manage debt when approaching or in retirement

July 17th 2020 | Categories: Retirement | Debt Management |

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Many events in life require us to take out a loan, and hence acquire debt; buying a home, a new car, education and so on. Although debt is seen to be bad at times, it isn’t always bad and might be necessary to help you achieve your goals. However, you do need to have a clear plan for managing your debts and a strategy towards minimising the debt you owe when approaching retirement so that you can enjoy your golden years with financial security.


Retiring with Debt

Retirement is a huge milestone in your life. Years of hard work have led you to this moment so it’s important your finances support you in living your best possible life. When we enter any new stage of life, a lot can change, especially your finances. This is particularly emphasised in your transition into retirement. Your income will more than likely have changed or diminished, you may now have gained access to your superannuation, you may have started receiving a pension payment or have started living off your hard-earned savings or investments. You may find your expenses change too. As you get older your health-related expenses may increase and you may have a remaining debt to still pay off.

It’s important to have a clear picture of exactly how much you need for a comfortable retirement.

It has been observed that the number of Australians retiring with mortgage debt is soaring. According to a research by REST Industry Super, about 46% of mature-age Australians expect to retire with debt, of which 25% anticipate credit card debt, 21% expect to retire with a mortgage and about 12% with unpaid bills.

On average, mature Australians are entering retirement with an average of $158,000 in debt. There are multiple reasons, including a high debt-to-income ratio that has blown up from 72% to 132% for the people aged between 55 and 64 years. In some cases, the reason for entering retirement with debt is forced early retirement owing to redundancy and/or health-related concerns. Additionally, the drastic surge in property prices has also forced people to take bigger mortgages that take longer to pay off.


Understand how a financial adviser can support you with your need for financial security. Get in touch.

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Implications of Retiring with Debt on the Retirees: Should You Pay Off Debts Before Retirement?


Everyone’s financial position and circumstances are different. Although it’s a common goal to retire debt-free, for many, this simply isn’t possible. In an ideal situation, retiring debt-free will allow you to have more freedom, more money available for holidays, lifestyle, non-essentials and can help reduce overall stress.

Retiring without debt also means your loved ones won’t be liable if you are unable to make your repayments. If you do have debts, you may find once you transition into retirement you need to change your spending habits to adjust to your new budget, for many not having a solid income stream for the first time can cause some fear and uncertainty.

Debt can be a cause of stress no matter what age, so it’s important to have a clear plan to manage any debts owing. A financial plan will help to minimise the impact of debt stress on your lifestyle and provide you with peace of mind throughout your retirement.

Any time you can see foresee a major life change approaching, it’s important to reach out to your adviser or seek the advice of an adviser. They will be able to help you structure your finances in the most effective way possible that will provide you with financial security moving forward.


You may be interested in our article: How can I retire debt-free in Australia

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How to Approach Debts Before or In Retirement?

There are different approaches to consider when paying off debts that will depend on your situation, your needs and what is available to you. We always recommend taking a look at the entire picture of your finances so you know exactly what your position is and what is important to you.  This will help you to create a clear plan towards reaching your dreams and goals.


Here are a few simple steps to get you started:


You may also be interested in our articles:

5 tips to help you save for retirement

A guide to managing debt


Strategies for paying off debts

Pay off debts using a super lump sum:

There are various ways you may decide utilise your superannuation when approaching or in retirement, you may decide to pay off any debts with a lump sum payment from your super. If you do decide to use this option, you will need to consider:

We cover this topic in greater detail in our article Should I pay off my home loan with a super lump sum


Downsize your property:

You may decide you are able to pay off debts by downsizing or selling your property. Perhaps your equity has substantially grown over the years and now the family has moved out your home you don’t need as much space. If you have money left over after the sale and debt repayment, you should consider strategies to invest the money that could provide you with an income during retirement.


Consider Refinancing:

With interest rates at an all-time low, you may find you are able to lock in lower interest rate through refinancing. This may allow you to pay off more debt faster before approaching retirement or make the debt more manageable once in retirement. You can download our refinance guide here.


See a financial planner:

Retirement is one of the most important stages of life and a financial adviser can help you make a big difference to your financial future. As you move through life your superannuation and investments grow and are exposed to different levels of risk. When you are approaching retirement, it is important to review both the structure of your super and its risk exposure.  Over the years we have been able to help our clients structure their finances so they can live out their possible life in retirement.


“It was quite incredible really, Luke was able to look into our super and finances and work out a retirement plan for us, all whilst we had no idea we were even in a position to retire!”

You can read their full story here.

You may also be interested in our articles:

How to retire your way

Could you retire today

There are now new changes to superannuation work test age, which has now been increased from 65 to 67. You can read more on that here.

Although debt can be manageable it’s important to have a clear strategy around reducing debt, particularly in retirement. If you are approaching retirement or are already enjoying retirement and want to ensure your finances are working as hard as they can for you, we encourage you to reach out to one of our advisers to see what options are best for you.


Speak with us today.

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.