According to a study released by the Money Charity, the average total debt per UK household stood at £62,286 in June this year.
With retirement typically a position that most workers look forward to, this excitement is being dampened for many due to their high levels of debt. As such, many are now resorting to even delaying their retirement due to their debts.
It is important for workers to understand their financial position many years ahead of their retirement so that they can budget accordingly and decide whether they will need to explore any alternative routes to fund their retirement, in addition to their pension.
By realistically planning their retirement in advance, this can help to reduce stress and the burdens of unexpected financial uncertainty in the future.
It is important to review and understand any outstanding finances you may owe several years in advance of your retirement age. If you are able to pay off lump sums from the debt owed, then this can help to reduce the monthly outgoings and as well as accrued interest. As such, you may be able to enter your retirement with a more manageable, as well as smaller, debt repayment plan.
It is further important to review how much money you have saved so far, and plan your retirement in accordance with this. This will allow you to accurately review the entirety and full value of your pension prior to receiving it.
When following the above, you must consider any big expenses you plan to make throughout your retirement. This could include travelling or supporting a family member with buying their first home for example.
It is further worth ensuring that you have collected enough money to account for any unexpected expenses or financial emergencies. This emergency amount should be taken off from your pension pot, allowing you to account for your average yearly budget once you have retired.
By doing so, you are able to create a forecast for your yearly retirement funds and can thus set realistic expectations for your retirement goals, investments and plans.
Additionally, it is worth evaluating your current spending and outgoings, identifying any areas of spending that may be able to be reduced or cut from your routine. This could include opting for public transport more frequently, or choosing to cook at home more instead of going to restaurants or getting takeaways. While these changes may seem small, they can build up together to allow for a significant sum that could be used to pay towards current debts.
Many people who reach retirement age opt to move to smaller properties. This will typically free up some money from their previous property and help them to avoid debt during their retirement.
While carrying debts into retirement may not be ideal, it is far from uncommon. In the closest years leading up to retirement age, you must prioritise your finances to help you make the most out of the money that you have. This involves working through your debts from the greatest to the smallest. The greatest debts have more potential to disrupt your pension and so these should be dealt with first.
It is important that if you are carrying debt into retirement, you have a detailed plan on how you will manage repayments and your day-to-day finances and spending.