Planning for retirement when you have debt

29 Aug Planning for retirement when you have debt

Written and accurate as at: Aug 14, 2024 Current Stats & Facts

Ideally, your super and savings should be funding all the things you were dreaming about doing as a retiree, not getting eaten up by your mortgage, personal loan or credit card. But even if debt is going to play a bigger role in your post-work years than you hoped, there are strategies to help make things more manageable.

Revisit your mortgage arrangements

Your mortgage may be the biggest source of budgetary strain, so if you can reduce your monthly repayments even a little bit it might make managing your cash flow easier. Scan the market for an idea of what other lenders are charging, and if you believe you’re currently paying more than you need to be, it might be worth switching.

That might mean refinancing to a different lender or leveraging your market research to secure a lower rate with your existing one. You might even be able to switch to one of your lender’s cheaper loans, but that might involve parting with certain features (such as your offset account).

Put together a budget

Keeping a budget is good practice no matter your circumstances, but it can be particularly helpful when there’s debt to tackle. Start by calculating the income you receive from all sources. Once you have a ballpark figure, you can estimate how much you can afford to spend, how much you can save, and what you can direct towards paying off your debt.

While some people find success with budgets that account for every dollar, others might prefer a looser approach. You don’t need to tighten your purse strings so much you close yourself off from all things enjoyable; you just need a clear picture of where your money is going each month and a willingness to make a few sacrifices.

Consolidate your debts

Between the different interest charges and varying fees, having multiple debts can be a headache to manage. One potential solution is to roll all your debts into a single loan so you only have to budget for one recurring repayment rather than several.

People often choose to consolidate their debts into their home loan, as the interest rates on home loans tend to be lower than those on credit cards and personal loans. Just keep in mind that doing so will decrease the equity you have in your home.

Think about downsizing

If your children have moved out and you and your spouse no longer require a large home to accommodate them, you can think about selling your property and purchasing a smaller one. The benefits here are twofold: it might allow you to pay off the remaining balance on your mortgage, and if you’re 55 or older and meet certain eligibility criteria, you and your spouse might be able to use part of the sale proceeds to make a tax-free contribution of up to $300,000 each to your super.

Delay retirement for a little bit

Finally, you might consider putting off retirement for a few years so you can spend some more time lowering your debt levels. The more you can chip away during your working years, the less vulnerable you may be to interest rate fluctuations when you retire. And if you can free up enough money, you might be able to retire with more confidence that you’ll be able to do all the things you originally planned (as well as manage any surprise expenses).