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One in five retirees will have debts

One in five retirees will have debts

Category: Retirement

Updated: 28/01/2015
First Published: 28/01/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Those approaching retirement will probably have dreams of being able to enjoy leisurely days that are free from work and financial strain, but unfortunately, many could find it a struggle. Research from Prudential has revealed that a worrying number of people planning to retire this year will have outstanding debts, and that could place a huge amount of pressure on retirement income.

A growing issue

The figures, from Prudential's Class of 2015 study, show that 19% of those planning to retire this year will do so with debts outstanding, averaging a considerable £21,800 each. They're more likely to retire in debt that those who gave up work last year – 17% of those retiring in 2014 said they'd have debts outstanding – but on a positive note, the average amount of debt outstanding has reduced for the third consecutive year.

In fact, those retiring with debts this year say they'll owe, on average, £16,400 less than those who retired in 2012, representing a 43% drop in the last three years. They also expect to take less time to clear those debts, anticipating it to take just over three years before they're paid off, compared with an average four-year prediction in 2014.

However, debts of £21,800 are still substantial, and without working it could be difficult to pay them off. It's no wonder, then, that some think it'll take longer to be debt-free – almost one in 10 (9%) of this year's retirees with debts expect to take nine or more years to clear them, while 5% don't think they'll ever pay them off.

What debts?

Given that the typical size of a mortgage has increased considerably in the last few years, it's perhaps unsurprising that some people will have been unable to pay it off by retirement age. Of those expecting to retire with debts, 43% will have an outstanding mortgage, a figure that's remained largely unchanged over the years, while over half (55%) will have credit card debts.

Take action

Are you approaching retirement? Do you still have debts to pay off? If so, it's time to do something about it. The Class of 2015 may have the highest expected annual retirement income for six years, clocking in at £17,000 a year, but debts remain a major drain on finances – on average, debt repayments currently total more than £200 a month, rising to over £500 a month for 14% of those surveyed.

This kind of repayment commitment could seriously take its toll, particularly if you decide to give up work completely. A sensible move would be to do as much as you can to reduce your level of debt before your retirement date hits, perhaps by overpaying your mortgage or making higher monthly repayments on your credit cards. At the very least, you'll probably want to stop using credit, particularly if you can only afford the minimum repayments, and make sure to discuss your concerns with your financial adviser, who'll be able to help you work out your retirement budget and decide on a suitable repayment plan.

Stan Russell, a retirement expert at Prudential, commented on the latest findings: "Our new research shows a welcome downward trend in the average amount of debt for people retiring this year. However, it is a concern that the proportion of people reaching the retirement milestone still owing money is refusing to fall.

"For many, retirement is a time in life when it is necessary to reassess household budgets, and any debts outstanding will inevitably make this job more difficult. A consultation with a financial adviser or retirement specialist can help people to get their finances ready for life after work.

"Debt does not have to be a major issue in retirement though, as long as people have a realistic repayment plan in place."

What next?

Consider your retirement income options – consult our annuity planner to get started

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