Exploring Retirement: How To Plan When You Have Debt

With household debt levels skyrocketing, many Australians are finding that their financial obligations are extending well into their retirement years. According to the ABS, the average household debt has quadrupled over the last 18 years, climbing from $62,000 in 2003-04 to a staggering $242,000 in 2021-22. This reality presents a challenge for retirees who hoped their superannuation and savings would fund their golden years, rather than being consumed by mortgages, personal loans, or credit card debt. However, even if debt will play a larger role in your retirement than you initially planned, there are strategic steps you can take to manage it effectively.

Revisit Your Mortgage Arrangements

For many, a mortgage is the most significant financial burden. Reducing your monthly repayments, even by a small margin, can greatly ease your financial stress. Start by scanning the market to see what other lenders are offering. If you find that you're paying more than necessary, it might be worth considering refinancing with a different lender or negotiating a better rate with your current one. Alternatively, you might be able to switch to a cheaper loan product with your existing lender, though this may involve sacrificing features like an offset account.

Create a Realistic Budget

Budgeting is always a wise financial practice, but it's particularly crucial when you're managing debt in retirement. Begin by calculating all sources of income. Once you have a clear picture, you can allocate funds to essential expenses, savings, and debt repayment. Whether you prefer a strict budget that accounts for every dollar or a more flexible approach, the key is to be aware of where your money is going and to make informed decisions that allow you to balance enjoyment with financial responsibility.

Consolidate Your Debts

Managing multiple debts with varying interest rates and fees can be overwhelming. Debt consolidation offers a potential solution by rolling all your debts into a single loan, simplifying your repayment process. Many choose to consolidate debts into their home loan, benefiting from typically lower interest rates compared to credit cards or personal loans. However, it's important to remember that this will reduce the equity in your home.

Consider Downsizing

If your children have flown the nest and you no longer need a large family home, downsizing could be a practical option. Selling your property and purchasing a smaller, more manageable home can help you pay off the remaining mortgage. Additionally, if you’re over 55 and meet certain criteria, you and your spouse could each contribute up to $300,000 of the sale proceeds into your superannuation, boosting your retirement savings.

Delay Retirement

If your debt levels are still high as you approach retirement, consider postponing your retirement for a few years. Continuing to work will allow you to chip away at your debt, reducing your financial obligations before you leave the workforce. By lowering your debt during your working years, you'll be better positioned to handle any financial surprises in retirement and enjoy the lifestyle you've planned for.

Planning for retirement with debt requires careful consideration and a strategic approach, but with the right plan, you can still enjoy a fulfilling and financially secure retirement.

Book a call with the Life Sumo Team today to get personalised advice based on your circumstances.

This provides general educational information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. Life Sumo (Orion Enterprises (Cairns) Pty Ltd) has representatives that are authorised to provide personal financial advice