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Retirement - 7 min read

When most people think of retirement, they picture freedom: freedom from bosses and deadlines, early mornings and commutes, and meetings and the Monday blues. But all too many Australians are retiring without freeing themselves from the biggest master of all.




In fact, in recent years, debt has risen among mature-age Australians. In this post, we’ll first look at several reasons to eliminate debt before you retire. Then we’ll look at strategies to help you achieve the accomplishment of retiring debt-free.


Why Retire Debt-Free?

From psychological to financial, there are plenty of reasons to eliminate your debt before you stop working.


Improved Wellbeing

Indebtedness adds to our psychological distress, according to studies. But it doesn’t take a survey to inform us that entering retirement debt-free will help us to live happier and healthier during our golden years.


Instead of trying to figure out how to cover your mortgage payment after a month of expensive car repairs, pre-empt those retirement worries now. You may have to make some sacrifices to pay your debts off early, but you’ll appreciate those sacrifices later.


Less Stress for Your Family

Those who enter retirement with significant debts are more likely to run into financial crises. These episodes cause stress for retirees’ children and other family members. Not only do adult children worry about their parents’ wellbeing, but they may end up paying for essential services such as aged care.

Protect your family from such a situation by securing your finances while you’re still working.


A More Secure Community

Mortgage debt has soared in recent years due to skyrocketing housing prices in many parts of Australia. During the first decade of this century, more than 500,000 older Australians (over the age of 50) lost their homes because they couldn’t afford their mortgages.


According to Rachel Ong ViforJ, professor of economics at Curtin University, many of these older people rely on rental housing assistance, which puts increased demands on taxpayers. In many cases, retired recipients of rental housing assistance never leave the program. When you enter retirement debt-free, you’re much less likely to require help from your fellow taxpayers.



That brings us back to freedom. Without debts to worry about, you can begin your retirement with all of your options in front of you. Without fixed debt payments lined up for your attention, you can travel or take up a new hobby. You can step into your new life with light feet, knowing you don’t have debts weighing you down and slowing your steps.


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How to Pay Off Your Debts Before Retirement

It sounds great! But what if you have significant debts with which to contend? How can you arrive at your desired retirement date without a single account in the red?


Create a Plan

Every successful journey begins with a plan. If you’re unsure of where to start, consult your wealth adviser.


The first step is to account for all of your debts. These may include mortgages, credit card debt, car loans, business loans and student debt. Make a list of your debts, including each loan’s interest rate. With this information at the ready, you can decide on the best strategy for each debt.


Make Mortgage Overpayments

This strategy works well for Millennials and Gen Xers who still have decades until retirement. Instead of paying the minimum amount on your mortgage each month, pay down additional principal. By adding extra principal payments each month, you will take years off of your home loan and free yourself from debt much sooner. A bonus is that you can save thousands of dollars in interest over the life of the loan when you pay it off early.


Embark on Higher-Risk, Higher-Return Investment Strategies

If you have many years until retirement, consider adopting a higher-risk strategy with your super and other investments. Although you do increase your risk, you may very well increase your gains, allowing you to arrive at retirement with more money.


If you’re an older worker who has earned substantial gains from your super, you could withdraw a lump sum to pay off your debts before you retire.


Consider “Debt Recycling”

Talk with your wealth adviser about the potential for debt recycling, which is essentially borrowing against your equity and investing your borrowings. The benefits of this strategy are two-fold. First, you decrease your non-deductible debt for tax purposes. More importantly, you pay off your home loan much faster.


Pay Off Your Highest Interest Loans First

With this strategy, you make a list of all of your debts and then start focusing on the highest-interest loan first. Put every extra cent you have toward that loan until it’s paid off. Next, focus on your next-highest-interest loan. Since one of your debts is already gone, you should have more cash to aim at the next target. This is a satisfying way to pay off your debts because your efforts snowball with each debt you eliminate, giving you a feeling of satisfaction and accomplishment.


Let Us Help

If you’ve reached retirement and are still struggling with debt, don’t despair. Some of these strategies, such as paying off debts with a lump sum super withdrawal, may still apply in your situation.


No matter where you are in your debt-elimination journey, let us help. Set up a time for a consultation with one of our wealth management advisers, and create a plan that will enable you to enjoy the freedom you seek.


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