For many Aussies, retirement these days doesn’t mean leaving a debt-free legacy behind. With housing costs on the rise, wages stuck in neutral, and people working well into their 60s, more people are reaching retirement age with a mortgage, personal loan, or credit card still weighing them down.
The thing is, while it’s becoming more and more common to have debt in retirement, it’s still a pretty big problem. Carrying debt into retirement can really squeeze your cash and limit the options you’ve got for living life on your own terms. Make no mistake, any ongoing repayments are going to take a big chunk out of the income you’ve got to live on, travel, or leave something to the kids without a bunch of strings attached.
The good news is that with the right planning, you can usually whittle down retirement debt, tame it, or even get rid of it altogether.
If You’re Still Working: Get a Move On
If retirement is around the corner and you’re still slinging your hat around the office, then now is the time to get proactive. A good financial planner can help you put together a plan that’s tailored to your needs and goals.
One thing you might consider is throwing some extra cash at your debt while you’ve still got a regular income coming in. Paying down the principal will make life a lot easier once you’ve hung up your working boots and are living on a more limited income. On the other hand, some people might think about putting off retirement for a bit longer, so they can keep chipping away at that debt. While this can work, it’s worth being realistic – the older you get, the more likely you are to be forced out of the workforce due to health issues. So relying on ‘working longer’ might not be the best plan.
Prioritise High-Interest Debt
Not all debt is created equal – it’s a bit like saying all burgers are the same. Some debts, like credit cards and personal loans, are the ones that need to be tackled first.
If you’ve got a home loan with a good interest rate, you might be able to use it to consolidate other debts. This can make it a lot easier to keep track of all your different obligations, and it can help you avoid missing payments in the first place. If you can get your hands on a lower-interest home loan with a redraw facility, it might be a good idea to roll over your higher-interest debt into your mortgage. This can help you save on interest costs and make your repayments easier to manage, but you’ve got to make sure this fits with your overall retirement plan.
Already Retired? Time to Review Your Options
As a retiree, it doesn’t have to be a given that you’ll be stuck with debt for the rest of your life. One option might be to use a bit of your superannuation balance to wipe out any remaining debt. This will cut into your super savings, but getting rid of the debt will free up a load of money for other things, like living life on your own terms and not having to worry about bills all the time.
Downsizing: A Fresh Start
Downsizing your house might be another strategy worth thinking about. Selling a bigger place might give you enough cash to pay off your debts and still allow you to buy a smaller, more manageable home.
But be careful – selling up and putting some of that money into super might have some implications for the Age Pension, and it’s also worth thinking about the tax implications and any fees that might be involved. It’s a good idea to get some advice before you start making any big decisions.
When Carrying Some Debt Makes Good Sense
In some cases, carrying a bit of debt into retirement can actually make sense. For example, if your mortgage interest rate is pretty low, your investments are doing all right, and you think you’ve got a long retirement ahead of you, retaining some debt might be a smart move. In some cases, the returns on your investments might even be enough to offset the costs of carrying debt, making it a calculated part of your overall financial plan.
The key is to make sure the decision to carry debt is a deliberate one, and that it’s something that’s good for you in the long run – not just something that happens by default. When it comes to debt, it’s worth thinking about how it fits into your bigger financial picture to make sure you’re on the right track.
Utilising the Right Tools
Working out what to do with your super and planning for retirement can be a real headache, but there are plenty of resources out there to help. Engaging with a financial planner is a good place to start – they can help you get a handle on your current financial situation, work out what you’re trying to achieve, and give you a plan that’s tailored to your retirement goals.
In addition to expert guidance, there are loads of online tools designed to help you wrangle your super fund and retirement savings. For instance, those superannuation calculators are a godsend – they let you track how close you are to your retirement goals, compare different super funds and even run a few ‘what if’ scenarios to see how different investment strategies might impact your end balance. And, of course, there are heaps of industry insiders and super funds that provide educational resources, webinars & guides to keep you in the loop on all the changes and opportunities you need to know about in the world of Australian super.
If you’re feeling pretty hands on and wanting to take the reins, self-managed super funds (SMSFs) might just be the ticket. But let’s be clear – they come with a whole bunch of extra responsibilities & costs that you’ll need to factor in. So, before you jump in, its a good idea to get some specific advice from a financial adviser to help you figure out what’s best for you.
By making use of all these helpful tools and getting some expert guidance, you can really take charge of your retirement planning and be on your way to a pretty comfy retirement. And remember the right resources & advice can be the difference between a secure financial future and not quite making ends meet.
Get Personal Advice
Retirement debt is one of those things that doesn’t always have a simple answer – its all about your health, your income sources, how your investments are tracking & what your family goals are. All these things play a big part in deciding what’s the right approach for you.
Get in touch with Insight Wealth to see how we can help you navigate debt in retirement.