Home > Finance and Pensions > Clearing Debts Before Retirement

Clearing Debts Before Retirement

By: Garry Crystal - Updated: 9 Feb 2013 | comments*Discuss
Retirement Debt Debt Clearance

Clearing debts before retirement would be ideal but the fact is that 50% of retirees will be in debt during retirement. Financial planning for retirement should start as early as possible to help keep debt levels to a minimum.

Common Retirement Debt Problems

According to the Key Retirement Solutions group the average retirement debt is £36,000, and monthly repayments of these debts amount to almost £300. Mortgages, loans and credit card payments are common retirement debt problems. Understandably, mortgages top the list with nearly 27% of retirees owing around £45,602. Loan repayments come in a close second with 20% of retirees owing £10,447. Around 20% of retirees also owe an average £8,967 on their credit cards. Not surprisingly, the combined total of these monthly repayments takes a big chunk from retirement income.

Why Debt Clearance Takes a Back Seat

For many people debt is a necessary evil, and mortgages, loans and credit cards are all financial necessities. Although most people would love to clear their debts before retirement other financial considerations do take priority. Parents with children often have very high school fees to pay, which can mean that clearing debts can be postponed for decades. Mortgages can last for 30 years and are often seen as something to be dealt with further down the line. Financial recessions can also occur and can mean a decrease in income and cutting back on extra debt repayments.

Financial Planning to Clear Debts

Many people start a pension plan early in their lives but forget about the current debts they are amassing. Lumps sums from pension funds can be used to clear debts on retirement. But it will be a better option to have debts already cleared without any help from pension funds. Calculating monthly income, expenditure and debt repayments now will provide an overview of how long it will take to clear debts. For many people it can be a shock when they find out just exactly how long it will take to clear all their debts. It can also be a big shock when the monthly amount required to clear debts before retirement is assessed.

Assessing a Debt Clearance before Retirement Figure

Finding out how much in monthly repayments will be needed to clear debts is a simple process but there are a few issues to consider. The more time left before retirement and the amount of debt amassed will play a part in assessing the extra income needed. Job stability is another factor as are unexpected expenses that cannot be foreseen throughout a person’s life.

The first step will be to set out what has become known as a Statement of Affairs and Personal Balance sheet. Included in this sheet will be:

  • Household information; number of adults and children, and the number of cars owned
  • Monthly income details of householders including salary, benefits and any other income after tax
  • Monthly expense details; every expense from groceries to car parking to daily lunches and utility bills
  • Assets; savings, house value if mortgaged and any stocks and shares
  • Secured debts and hire purchase debts
  • Unsecured debts such as loans, credit cards and overdrafts
  • Monthly budget summary, which is the amount of income left after debt repayments
  • Personal balance sheet summary, which is the amount of net assets after secured and unsecured debts have been taken off

Assessing the Debt Damage

Once the figures in the personal balance sheet have been obtained it is a matter of working out how debt will have been cleared by retirement age. This is done by calculating how much will have been repaid by the number of years left until retirement. Issues such as borrowing on the equity of a property will alter these figures. The next step will be working out how much will actually be needed in repayments to clear debts by retirement age. An assessment can then be made whether repayments will need to be increased to clear all debts before reaching retirement.

No retirement debt clearance figures can be set in stone, especially over the course of decades. But a retirement debt clearance calculator will give a good indication of how much should be repaid to hopefully clear major debts. Clearing debts before retirement will give retirees a larger amount of financial freedom. Debt clearance will also hopefully help towards making retirement income last longer and lead to an enjoyable retirement.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

(never shown)
(never shown)
(never shown)
(never shown)
Enter word:
Latest Comments
  • Jac
    Re: Clubs to Join in Retirement
    Ive just retired and looking to meet new people for chat, lunch, reading, walking, rambling, visiting places of interest, like to…
    19 April 2019
  • Marian
    Re: Clubs to Join in Retirement
    I am 85, widow, feeling lonely, so I would like join in some social. I need transport... Can someone call me to give more…
    3 April 2019
  • Pauline
    Re: Clubs to Join in Retirement
    Recently moved to Sutton Coldfield area and would like to meet like-minded people who enjoy a chat over a coffee, a game of golf, a…
    12 March 2019
  • BJ & BJ
    Re: Clubs to Join in Retirement
    we are looking for day time socializing clubs for us both, chats entertainment, raffles of maybe donated items, some times bingo or…
    5 March 2019
  • Serenity10
    Re: Clubs to Join in Retirement
    Hi I am looking for new female friends in the Didcot area. There doesnt seem to be very much at all for over 60's. Can anyone…
    23 February 2019
  • david
    Re: Learning for Free in Retirement
    I am 88 years of age and have been left a macOS High Sierra. Can you teach me to use it correctly ?
    22 February 2019
  • david
    Re: Learning for Free in Retirement
    I am 88 years of age and have been left a macOS High Sierra and cannot use it correctly. Can you help me? Regards David…
    22 February 2019
  • Skinbase
    Re: Learning for Free in Retirement
    Are there any free classes in the Fareham Hampshire area for iPad users to learn online banking , how storage can be managed,…
    21 February 2019
  • Madge
    Re: Clubs to Join in Retirement
    Hi I am out going and enjoy life, recently widowed after a wounderfull. Marriage find I want to make new friends and live
    17 February 2019
  • Tommy
    Re: Clubs to Join in Retirement
    I work on "Jeremy Vine" on Channel 5 and I'm looking to reach out to Retirement communities to ask if anyone would like to come to…
    15 February 2019