Aim to be debt free in retirement

Nearing or entering retirement with serious levels of debt is something more Australians should think about.

I’m a big fan of entering retirement with as little debt as possible but surprising numbers of Australians are still carrying large sums of debt even when they’re close to, or in, retirement.

An AMP/NATSEM report from late 2015 found 78.3% of 50 to 65 year olds still have household debt, while 44.1% of over-65s face a debt burden. And we’re not talking nickel and dime sums either. The average debt among 50-65s is $68,500 but at the top end of the scale, one in ten of these households owe $534,300.

To put these figures in perspective, super industry body ASFA says men currently retire with an average of $292,500 in super, a figure that falls to $138,150 for women.

With this level of super savings, ASFA notes the majority of recent retirees will need to substantially rely on the age pension. Using your super to pay out personal debt – especially big ticket debt like a home loan, means losing a solid chunk of your nest egg in one hit, further increasing the likelihood of turning to the pension for income support.

One alternative is to remain in the workforce for longer. Sure, this is a chance to grow your super, and pay down debt. But there are no guarantees about when you will retire. Workers often find themselves entering retirement earlier than expected due to health concerns or the need to care for an ageing family member.

This is why it’s so important to knuckle down and pay off a mortgage or credit cards particularly as you begin the approach to retirement.

I realise we’re also continually being reminded of the need to add to our super, and if you’re unsure which way to go – pay off your home loan or contribute to super, take a look at the Super versus Mortgage calculator on the government’s Money Smart website. It can provide an idea of which option will leave you better off depending on your life stage.

As a general rule though making a concerted effort to enter retirement debt-free provides plenty of pluses. It means living a relaxing, uncomplicated life free from stress about debt.

If you think about those potential repayments that could be accumulating in your own pocket instead of being funneled off to the bank, you get a better mental picture of the benefits of enjoying a debt-free retirement.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.