Debt in retirement is on the rise – is that bad?

One in nine Australians expects to enter retirement with debts of $250,000 or more, a new survey has found.

And while one in nine is not many, only one in seven Australians over 50 believe they will have paid off their mortgage come retirement day.

The AMP survey results align with the latest figures from the Australian Bureau of Statistics (ABS). These show average household debt levels have quadrupled for Australians aged 55 and over in the past two decades.

According to the report, this increased level of household debt is resulting in Australians changing their approach to lifestyle. Australians are willing to “sacrifice a better lifestyle to help cope with the rising cost of living”, the report says. It also cites “mounting pressures to pay off the mortgage” as another reason for making sacrifices.

Is debt in retirement really such a bad thing?

The answer to that probably depends on just what it is you want to do in retirement. Still, many of today’s Australians over 50 probably weren’t expecting to head into retirement carrying debt.

Ben Hillier, director-retirement at AMP, says it’s a shattered dream for many. “For as long as we can remember, the Australian dream has been debt-free home ownership,” he said. This “provides the financial foundation and security for a comfortable retirement”.

Mr Hillier says that more Australians retiring with increasing debt means “more retirees exposed to interest rate fluctuations”. This presents them with “an evolving challenge in financial planning for retirement”.

This changing landscape needs to be acknowledged by industry, government and regulators, Mr Hillier says. This would allow financial advisers “to work together to provide Australians with greater financial confidence in their retirement”.

It must be acknowledged that Mr Hillier’s standpoint is very much one that supports increased business for AMP. Nevertheless, acknowledgement of a changing landscape and setting up support infrastructure for such change seems like solid advice.

Glass half-full approach

Meanwhile, another insurance giant, TAL, has released its own report, and it portrays a sentiment of optimism among the respondents. The TAL and Investment Trends 2023 Retirement Income Report found fewer than 5 per cent of retirees are concerned about still having debts to pay off in retirement.

In addition, more retirees now believe their savings will outlast them than believe the opposite. It’s the first time in a decade that the ‘believers’ have outnumbered the ‘non-believers’. The report indicates 35 per cent believe their savings will outlast them, compared to 33 per cent who fear the opposite.

How much debt they expect to have may play a significant part in the respondents’ levels of optimism. If it’s a debt they can comfortably service while living and settle with their estate, there’s little cause for concern.

Putting together a plan to navigate a future that may incorporate retirement debt is probably a very good idea. And once it’s in place, anxiety levels regarding retirement years – even those laden with debt – should decrease.

Have you thought about whether you will take debt into your retirement years? Does the possibility cause you concern? Let us know via the comments section below.

Also read: Can debt be inherited? Yes, here’s what you should know

Written by Andrew Gigacz

Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.

One Comment

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  1. Obviously the vast majority of these people haven’t applied themselves throughout their lives and now are paying the price. You need to plan for the future today. Life isn’t a party and you can’t burn the candle at both ends, something the young of today will realise in time, which unfortunately for them will be too late. You reap what you sow. Holiday snaps and memories regrettably don’t pay the rent. I would refer you to the Parable of the Grasshopper and the Ant, I really can’t be bothered explaining it, look it up, that will explain everything. Jacka.

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