How to avoid retiring with debt

Retirement is just around the corner, which means you’re probably more focused on mastering the art of mixing a piña colada than worrying about your savings and super, right? And you should be getting excited — what’s not to love about relaxing instead of working? But that doesn’t mean you should be neglecting your finances. In fact, it’s a good idea to be doing lots of preparation, so you don’t retire with too much debt.

The rising cost of living is having an impact on many Aussies. In fact, Choosi found that 62% of us are struggling to keep up with how much things cost year to year, and more than half of us (57.4%) find it challenging to save enough money regularly. This means that many of us get to the end of our working lives with quite a bit of debt hanging around. It’s not a fun thing to face, especially when you’re gearing up for your most happy and relaxed years.

The bottom line? More and more Australians are starting to retire with debt. It doesn’t have to be the end of the world, but you can introduce some smart strategies to stave off the debt demons and look forward to those relaxing retirement years!

What are the main sources of debt?

We’re just going to assume that you don’t want to be part of the one in three (36.3%) Baby Boomers approaching — or already in — retirement who say they feel anxious and stressed about their debt position. It’s OK, Boomer — there’s plenty you can still do about it!

The first step to mitigating the risk of retiring with debt is to know where it comes from. Australians have the world's second-largest household debts, which might be very worrying to many of us nearing retirement age.

According to the Australian Bureau of Statistics (ABS) owners with a mortgage were the most likely households to be over-indebted (47%) based on tenure type. Where households had a property debt, more than half (51%) of 35–44 year olds were over-indebted, which might make them nervous as they approach their final working decades.

Another worrying trend identified by the ABS was that average household debt (after adjusting for inflation) has almost doubled, increasing from $94,100 in 2003–04 to $168,600 in 2015–16.

If you’re dealing with any of these forms of debt now, it may mean you won’t be able to afford a comfortable retirement lifestyle, or that you have to sell your family home and downsize just to stay in the black. But there are strategies you can employ now to take away the potential sting of unpaid household debt.

Strategies to implement today so you can retire more comfortably

Happy couple on golf course.

No one wants to retire with debt — at least not an unmanageable amount. So how do you avoid it? With a few handy strategies to reduce your debt risk, that’s how. Consider the below:

  • Pay off extra: You might’ve noticed that interest rates are crazy-low right now, so you may wish to use the time now to make extra repayments on your loans.
  • Cash over credit: Having personal debt tends to mean lenders tar you with a certain brush, which basically means you may have to pay higher interest rates. It can be advantageous to avoid spending what you don’t have, and not fall into the trap of taking out cash advances on credit cards. If you do, you could be burdened with huge penalty fees.
  • Consider a downsize: Maybe the kids are finally out of your hair and your home is a bit bigger than you need these days. Would moving to a smaller, cheaper property mean some extra cash to fund your retirement?
  • Top up your super: Consider how you can grow your nest egg beyond just employer payments. From pre-tax contributions to spouse contribution splitting and even investing the proceeds of selling your home into your super, there are so many options out there for you.
  • Look after your mental health: Retiring with debt can be stressful mentally. It’s important to remain connected to your community and to do things for yourself.
  • Getting advice from a professional financial adviser is another idea.

Retiring with debt isn’t the end of the world, but there are ways to lower your debt risk today so you can enjoy a comfortable future — especially those piña coladas!

Ensuring you’re adequately insured is another way to be prudent. Retirement is a great time to assess your estate, including your personal insurance. Choosi can help lead the way.