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Reaching retirement age but still have debts? Follow our guide.
Retirement should be a time for you to relax and take things easy, but what if you still have loans, credit cards, or part of your mortgage to pay off? Will you alter your plans, or try and clear these debts before you finish work for good?
Well, research* conducted on our behalf found that almost half of over 55s are struggling to clear their debts before retirement, with the average amount owed being £4,400. And 1 in 14 of those who still have debts plan on delaying their retirement so that they can afford the repayments.
Can you clear your debts before you retire?
Once you retire, you’re likely to have a reduced income, which can mean you’ll have to cut back on certain areas.
If you do have outstanding debts, they will start to take up a bigger share of the income that you receive from your pension, or any savings you’ve put away. You may even struggle to make your monthly repayments so, if you can, it makes sense to try and clear the majority of them before you finish work.
If you have a personal or workplace pension, you may be able to access a lump sum from age 55. You could use this lump sum to pay off what you owe. Speak to your pension provider … they should be able to give you advice on how much you’ll be able to take out tax free or get guidance from the Pension Wise service set up by the government to help people understand their financial options when they retire.
Put off retirement
If you really think you’ll struggle to pay back what you owe, you could delay your retirement for a couple of years. This may not be the ideal scenario, but since the government phased out the default retirement age, you can continue working even after you reach the state pension age, which is currently 62 for women and 65 for men (but both are rising soon).
The money that you earn while you continue to work could go towards repaying your debts and if you’re able to still pay something into your pension plan while doing this, you could have more to put towards your retirement later on. By this October, you’ll be able to make weekly contributions of up to £25 to your State Pension, and if you put off claiming it (for more than 5 weeks at least), it will increase by 10.4% every full year.
For many people part of their retirement planning is to sell their house and trade down to a smaller place. This may free up cash that can be used to clear other debts. However, if you don’t plan to sell there are special mortgage products that allow retired people to release some equity from their property to repay debt, for living costs, or even to pay for that dream holiday you’ve been promising yourself. If you are considering a specialist equity release mortgage you should seek independent financial advice.
If you don’t think that you’ll be able to pay off what you owe by the time you retire and you don’t think you’ll be able to cope financially once you do stop working, it may be time to seek the advice of a debt expert.
One of our expert advisors will be able to listen to your circumstances and talk you through the different debt solutions available (of which fees may be payable). The information that you receive could help you take an important step towards getting the stress-free retirement that you deserve.
*RedDot questioned a nationally representative sample of 2,000 adults aged 18 and over between 16th and 20th April, 628 of whom were Scottish residents.
by Christine WalshBack to blog home