22017Mar
Dealing with debt in retirement

1 in 4 set to retire this year with debts

New research has revealed that around 162,000 people will retire this year owing an average of £24,300 in debts. Could pensioner property wealth be the solution?

According to an annual survey by Prudential, 650,000 workers are expected to stop working in 2017, with with one in four of them facing years of debt repayment in their retirement*.

Some think they may never manage to clear their debts completely**.

The survey also found that…

  • Credit cards are the major issue for 51% of retirees with debts
  • Mortgages are second on the list, with 38% of those expecting to retire this year still repaying their mortgage (up from 33% last year)
  • Those retiring in 2017 with debts expect to spend the next three-and-a-half years paying them off at an average of £230 each month
  • Nearly 1 in 6 believe it will take 7 years or more to pay off their debts
  • 1 in 14 believe they will never fully repay the amount they owe

The £24,300 average debt is a rise of almost 30% on the figures released by Prudential last year, when it found that retirees clocking out of their careers in 2016 still had £18,800 to pay off.

Adjusting to retirement and the accompanying drop in income can be difficult enough for many retirees, without the burden of unsecured debts and mortgage repayments hanging over their heads.

Using their retirement income or being forced to return to work in later life to free themselves of debt could put a huge amount of pressure on retirees, at a time when they had been planning to enjoy their retirement and a slower pace of life.

– Geoff Charles, CEO of equity release specialist Bower Retirement

Dealing with debt in retirement

Fortunately, there are a number of options available to people in or approaching retirement facing years of debt repayments.

Debt repayment options include:

  • Downsizing to a smaller property or one in a less expensive area
  • Taking advantage of the pension freedoms which enable savers to access their pension savings from their 55th birthday
  • Renting out a room in your home
  • Returning to work
  • Borrowing the money from loved ones
  • Seeking advice from a debt specialist to arrange a manageable repayment plan

Of course, not everybody wants to or can downsize in retirement. For some, the prospect of selling the much-loved family home can be upsetting, for others, downsizing would leave them with a property too small or too far away from loved ones.

If you have been feeling the pinch and are seeking a way to cope with spiralling debts, then the solution may lie in the value of your home.

By unlocking a cash lump sum from your property wealth using equity release, you could clear your loans and credit cards, pay off any existing mortgage and have more disposable income each month to better enjoy your retirement.

With an equity release plan, you will still own your own home, and have the guarantee that you can continue to live in your home until you pass away or move into long-term care.

Interest payment and low rate plans

Today’s flexible plans include variable rate deals, and offer homeowners the ability to make voluntary payments to reduce or prevent interest from accruing on their equity release plan.

In some cases, up to 10% of the loan can be paid each year, meaning the plan can be paid off in just ten years if the homeowner wishes.

A plan such as this could be a good option for a homeowner facing the prospect of their interest-only mortgage coming to an end with no way of paying the loan back.

Speak to a specialist

Remember, equity release will reduce the value of your estate and the amount of the inheritance you leave, so it is vital to speak to an independent specialist in retirement lending before making a decision.

If you are considering equity release then speak to a member of the Bower team today to arrange your FREE, no-obligation initial home consultation. Call free phone 0800 411 8668.

*Moneywise.co.uk 20th Feb 2017
**Sky News 17th Feb 2017