How to manage debt in your retirement – the four ‘realistic’ steps

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According to findings by the Money Charity, in June 2022 the average total debt per UK household sat at £62,286 with the average debt per individual increasing by around £1,181 since last year.  For many workers, retirement is something that they are looking forward to however, this excitement can be damped if someone is saddled with debt. 

The decision to reduce a regular income could seem like a counterproductive move and many may feel like they have to delay their retirement due to the debts. 

Mark Gregory, founder and CEO of Equity Release Supermarket said: “Having unpaid debts can understandably be a source of stress for those approaching retirement.”

“It is important to understand your financial position for retirement as early as possible so that you can budget accordingly and assess if you need to explore alternative ways to fund your retirement, in addition to your pension. 

“This will help you to realistically plan your retirement and reduce stress in the future, while considering any eventualities also helps mitigate the risk of any unwanted financial surprises.”

Understand any outstanding debts

Mr Gregory states that the first step people need to take is to review and understand the outstanding finances that they have left to pay. 

If a person is in the position to do so, then Mr Gregory recommends paying a lump sum off the debts in order to reduce the monthly outgoings on them. This can help someone enter retirement with a more “comfortable and more manageable” debt. 

Mr Gregory added: “If paying off larger amounts of debt before retirement is unrealistic, consider what assets you have. Owning a house means you may have options to release funds to help pay debt that will not be reducing your pension pot. 

“Always be careful adding short-term unsecured debt to long-term finance such as mortgages or equity release, as it can be costly over the longer term, unless there is a solid repayment plan in place.”

Review and forecast your retirement funds

After spending, most likely, decades contributing to a pensions fund Mr Gregory stated that it was important that people review how much money has actually been saved and plan in accordance with this, particularly if someone has had multiple jobs over their working life. 

Mr Gregory said: “By doing this, you can accurately review the full value of your pension when you are ready to have it released.

“You should then consider the big expenses you are likely to make throughout retirement based on your goals, which could be anything from a bucket-list travel destination to supporting a loved one in buying their first home. 

“Make sure you have also accounted for a reasonable emergency savings pot, which you can use for any unexpected expenses.”

After doing this, people should take the emergency pot away from their pension pot and from there, people will be able to work out what their average yearly budget looks like.

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Mr Gregory added: “Creating a forecast for retirement funds is important to ensure you are able to realistically set expectations for your retirement, your goals, and what your day-to-day will look like. 

“Although you can’t always predict unplanned life events or expenses, having some money set aside for such is vital to ensure you can fulfil those fun-filled activities you have planned too.”

Evaluate your current lifestyle

Mr Gregory then recommends that people should evaluate their current outgoings and where they can cut back on their day-to-day routine, such as scaling back on the weekly food shop, or opting for public transport more frequently. 

He said: “If these changes to your outgoings are not significant enough, then you may want to explore alternative ways to fund your retirement.

“A common solution for pensioners is to downsize their home or even move in with close relatives. In situations where this is not viable or desirable, another option is to consider equity release.”

Mr Gregory explained that people usually look towards equity release as an option to pay off debts because, unlike residential mortgages, there are no regular mandatory payments required. 

He added: “Additionally, the interest rate is fixed for life and the plan is repaid when the homeowner dies or moves into long-term care.”

Establish expectations and set boundaries

Finally, Mr Gregory suggests people “set boundaries” with loved ones about how much time and money they are able to provide through their retirement.

Mr Gregory said: “This is something not often considered when thinking about retiring, but it is important to help avoid unexpected costs and responsibilities. 

“While this may feel like a difficult thing to say to family and friends, clear communication about these matters will help protect your wellbeing and finances later down the line as well as help save any uncomfortable conversations later down the line.”




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