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Retire in debt: Why one in three Brits retire in the red

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Retirement is usually viewed as a time of leisure when a lifetime of hard work pays off, and you can enjoy all of those things you previously deferred due to the pressures of work.

But what happens when it’s time to retire in debt? It’s not quite the ideal vision of retiring mortgage and care-free!

According to new research, those of us retiring this year face significant debt challenges.

More than one in three people retiring this year will do so in the red with average debts of £17,460. That’s according to the findings of a study carried out by Key.

The study looked into the finances and ambitions of more than 1,000 people who are expecting to finish full-time work in 2020.

Of those in debt, 48% owe money on credit cards, 31% have an outstanding bank loan, and 14% will still have a mortgage.

While the average amount owed by those in debt is £17,460, 8% owe over £20,000 and 4% do not know how much they owe.

On average, they expect to take around three-and-a-half years into retirement to be debt-free. However, a third of those in debt say they will never pay off the money they owe.

One in eight expects to owe money for nine years or more.

Some of those who are retiring with debt undoubtedly do so due to last-minute, unplanned expenses.

With the State Pension Age moving to age 66 for men and women by October 2020, people must plan for financial security in retirement.

Despite the importance of planning, most people plan for their retirement two-years-and-four months before their desired retirement date. In contrast, 34% of people only start to make definite plans to retire within twelve months of their intended finish date – a relatively short period in which to clear any outstanding borrowing.

In Wales, the study found that 48% of people retire in debt; this is the highest percentage in the UK, but the average amount they owe is among the lowest in Great Britain at £11,180.

The North East owes the most significant average debt at £22,900 and the South East at £22,400. People retiring in Yorkshire & The Humber owe the least on average at £9,000, while those in the North West also have lower than average debts at £10,100.

Considering debt in retirement is essential in relation to the value of assets held, including equity in a property. Over-65s have more than 1 trillion pounds worth of unmortgaged housing equity.

Releasing property wealth could smooth their transition into retirement.

Nonetheless, many retirees are failing to consider all their options. They, therefore, risk continuing to struggle with challenges like debt repayment in retirement when solutions such as equity release may be available.

Will Hale, CEO at Key, said:

“With changes to the state pension due to start coming into effect this year, it is vitally important to understand the challenges and aspirations of the ‘retirement class of 2020’.

“Today’s findings suggest that while most people work hard to retire debt-free, this is not the reality for one in three people who need to consider how they can service and repay over £17,000 in borrowing from their retirement nest egg.

“Even those with generous incomes may find this a stretch and people are taking an average of three-and-a-half years to clear the debts they retired with – at a time when they should be enjoying an active retirement and worrying less.”

The information contained in this blog post does not constitute advice or recommendations. You should seek independent financial advice before acting on any information on this website. 

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