Being retired and in debt is a prospect no one wants to face, but it can happen to anyone.
Homeowners often continue to pay off mortgages and support their family later in life, and some do not have a company or private pension to top up their state pension.
Regular outgoings also make it difficult to save for the long term, and many people end up with less money than they had hoped for in retirement. The last thing you want is to end up with no money for retirement – so read on to discover how to pay off debts before retirement.
The retirement riddle
New research has suggested that nearly one in three people are retiring in debt this year with an average of £20,650 to pay off.
What’s more, people expecting to retire this year are facing debts around a fifth higher than those who finished work last year – although the number of those in debt has remained steady at 32% in 2021 compared to 33% in 2020.
However, the average amount owed by people retiring in debt is £3,190 higher than in 2020 when the figure was £17,460.
Different types of debt
While fewer potential retirees had credit card debt in 2020 and mortgage borrowing remained stable, other types of debt increased.
For example, the number of retirees using their overdraft increased from 10% to 17%, and the proportion of those relying on family and friends has also climbed to 10%.
What’s more, as the impact of the COVID-19 pandemic continues to devastate peoples’ finances, debts will continue to increase.
In fact, the debt burden will take such a toll on retirement finances that many predict they will be more than three years into retirement before being debt free, with 11% not knowing when they will be completely clear.
Generation X and increasing debts
Things are only set to get worse as Generation X begin to approach retirement too, with one in three likely to experience substantial disadvantages.
Many 40- to 55-year-olds are simply unable to save due to overwhelming financial pressures, and COVID-19 has further disrupted retirement plans too, with one in five either saving less or relying on their savings due to the pandemic.
Gen Xers are also the generation that have been hit hardest by the pandemic, with 91,000 more unemployed older people now than 12 months ago – an increase of more than 30% in a year.
It’s no surprise that a recent report says that almost 40% of Generation X do not feel confident about planning for retirement.
So, what solutions are available?
Many retirees or people approaching retirement come to McAlister & Co for advice thinking that the only option they have available to them is bankruptcy.
However, in actual fact, there are a wealth of options available for those in or approaching retirement who are living with debt.
Our top three tips on how to pay off debts before retirement are:
First things first, it’s important to work out which debts need to be paid first, as some will be more pressing than others. For example, you should always tackle debts with higher rates of interest first as these could lead to significant problems if they remain unpaid.
2. Debt Management Plan
If you are struggling with credit cards, overdrafts or loans, a debt management plan (DMP) can help you make reduced payments over a set period of time.
As personal insolvency experts, you can count on us to deal with your creditors on your behalf and arrange a bespoke plan based on what you can afford, not what you owe. Find out more here.
3. Individual Voluntary Arrangements
If you owe more than £15,000, an individual voluntary arrangement (IVA) could be the right solution for you. When you enter an IVA, a repayment plan will be drawn up based on what you can afford, not what you owe.
After the set period (typically five years), any remaining debt is written off. Your home and other assets are usually protected too. Find out more here.
Here’s how McAlister & Co can help
If you are retired or about to enter retirement and need further advice about how to pay off debts before retirement, contact us today for free, confidential advice.
At McAlister & Co, we are personal insolvency experts and can advise you on everything from debt management plans to bankruptcy – so don’t suffer in silence. Reach out to our experts today for a stress-free retirement.