Most people aspire to a retirement that allows them to do things that they didn’t have chance to do while they were working. But this comes at a price.
Shrinking pension pots, coupled with the fact that retirees will be facing longer, more active retirements, means that debt is increasingly becoming an obstacle to consumers living their retirements to the fullest.
Our latest research – done in conjunction with the Centre for Economics and Business Research – found that over-55s will owe a total of £295bn by the end of this year, and that those over-65 will have accrued an average debt of £16,500 by 2029.
Some of this debt will be built up in retirement, but others will retire owing thousands. Indeed, 14 per cent of over-55s households still have a mortgage, while a worrying 23 per cent hold an interest-only product.
The research also revealed the nation’s 65 to 74 year-olds only have £3,100 left to save, invest or spend after bills this year, and that almost half would be unable to cover an unexpected bill of £5,000.
This paints a gloomy picture for some retirees, and this lack of retirement saving not only impacts them but also the generations that follow.
Older relatives gifting wealth to their children and grandchildren has become increasingly popular over recent years, and while the younger generation doesn’t necessarily expect support, I think I’m safe in saying that it is generally welcomed.
However, with the levels of unsecure debt for the 55-74 year olds increasing by a third in the last four years, this may well be difficult or out of reach for many people.
While no one wants to enter retirement with debt or increase their borrowing when they are retired, there are some options for people who are facing this challenge.
First, getting financial advice sooner rather than later is a great way to take a holistic view of your finances, plan ahead and manage borrowing.
However, not everyone can afford financial advice, so make sure you utilise online resources, such as the Money Advice Service and MoneySavingExpert, which can outline your options and help steer you in the right direction if you’re not sure where to start.
For those who are already in retirement, it’s important to remember that solutions exist to help refinance any outstanding debt, or simply boost your retirement income in later life. For example, equity release plans have grown in popularity in recent years, and with many more asset-rich, cash-poor Londoners finding themselves sitting on a significant amount of property wealth, it’s likely more people will look to unlock the wealth tied up in their homes.
Other options, such as retirement interest-only mortgages, can also help those who are coming to the end of the term of their interest-only mortgage and can afford to keep making the repayments, but not pay off the capital.
Think carefully about what you want during your retirement, and determine how you’re going to achieve this. Whatever your goals might be, guidance is available to help you retire debt-free, and safe in the knowledge that your finances are as secure as possible.