Traps to avoid in retirement – Carrying debt into retirement

All / 31.10.2019

Traps to avoid in retirement – Carrying debt into retirement

Increased housing costs and low wage growth are seeing more Australians carry higher levels of debt into retirement. Repaying this debt can place a major drag on retirement cash flows and hinder the achievement of retirement goals. These may include maintaining an adequate quality of life through retirement, and leaving a benefit to the next generation that is unencumbered by outstanding debt.

Fortunately, there are a number of ways by which retirement debt can be avoided or managed.

  • If you’re still working, increase your debt repayments. It may also be worth considering delaying retirement. However, bear in mind that with increasing age comes the increasing likelihood of being forced into retirement by ill health.
  • Tackle high interest debt first. If you’re paying interest on credit card balances or personal loans and have the ability to redraw on a mortgage, pay off the higher interest debts from your mortgage account.
  • Already retired? Look at using your superannuation to pay off outstanding debt.
  • Down size your home. This may allow you to pay off debts and still have enough to purchase a smaller home. If this strategy frees up more money than you need to repay your debt, investigate the superannuation incentives available to ‘down-sizers’. Also be aware any surplus cash you pocket may reduce age pension payments.

As always, it’s important to take your personal situation into account. For example, if your mortgage interest rate is low, you have significant investments earning a good return, and you have a long life expectancy, carrying some debt into retirement may be worth considering.

For help in managing your debt in retirement talk to your financial adviser.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.