2nd Nov 2016
FONT SIZE: A+ A-
Time to face the reality of debt in retirement
Author: Kaye Fallick
Time to face the reality of debt in retirement

Just like the proverbial frog in boiling water, many retirees are unaware that they need to jump out of their pot of debt.

We often hear disturbing reports about household debt, but in an age of information overload, we tend to simply switch off. But there is good cause for concern when it comes to retirement and how much debt you are carrying into your post-work years.

In fact, the numbers are truly scary. Back in 2012 the CPA undertook research that confirmed that the percentage of boomers hitting retirement with a mortgage is rapidly increasing. CPA Australia – Household Savings in Retirement 2012 noted an average debt of $117,000 for those aged 60-69 and not retired, and $55,000 for those of the same age who are.

The breakdown on this debt is instructive, with the average household aged 50-64 with a $75,000 mortgage, other property loans of $39,000 and credit card debt of $2300. Those yet to retire, aged 50-54, had a debt to superannuation ration of 91 per cent, whilst those closer to pension eligibility (60-64) had a debt to superannuation of 42 per cent.

A more recent survey conducted by the Australian Centre of Financial Studies (ACFS) on behalf of the Australian Institute of Superannuation Trustees (AIST) found that low-income households were struggling in retirement, either due to increasing debt or having to sell down assets to support living expenses. In particular, the 15 per cent who are renting and the 8 per cent still paying a mortgage, means one in 12 retirees has expenses which are not even listed on the widely accepted ASFA Retirement Living Standard, which ranks a modest single retirement income at $23,767.

Financial services company, ING measured the average retiree debt at $158,000. Whilst the above mentioned three surveys will have used different databases and measurements, it is nothing short of alarming to note the increasingly high rate of debt for retirees. And it is not just individuals who are in denial about their household debt – so too are the so-called experts. Why? Because of the ready acceptance of the ASFA Retirement Living Standard which notes income levels required for modest and comfortable retirements for singles and couples. These ‘standards’ automatically assume that you fully own your own dwelling. Yet for 23 per cent of the population this is a patently false assumption. The other 77 per cent may be carrying other forms of debt, including credit card debt, so repayments on these loans should also be factored into any predictions of costs of living in retirement.

The reasons for debt in retirement vary. In many cases, people have simply forgotten how to save. With higher incomes, expectations have risen and frequent holidays, meals out and consumer ‘toys’ have often been paid for by easy access to equity in the home. Somehow that mortgage has risen instead of being paid off. It must be noted that there are many cases of genuine hardship, including unexpected ill health, divorce and redundancies, which mean that the expected income has suddenly disappeared. In particular, many older women have found themselves alone, with insufficient funds from a divorce settlement to buy another home, and little prospect of finding work if they have a fragmented work history. Not an ‘exciting’ time to be an Australian at all.

retiree in debt

So now I have truly depressed you about the role and significance of debt in retirement, what can you do if you believe your debt is ballooning out of control and threatening your quality of life in later years?

For some retirees it probably is too late and the house will eventually need to be sold to fund later life needs, perhaps including aged care. But others may be able to take steps to correct this problem. There are three necessary steps:

Face the facts
This is the first non-negotiable step in the journey to financial survival. Unless you recognise that you have a problem, you are hardly likely to take the steps necessary to solve it. So force yourself to sit down with a sheet of paper and access to your key financial indicators – your super balance, savings balance, value of assets excluding the family home and recurring income. Compare this to your consolidated debt and interest repayments.

Measure the shortfall
You may have had a nice surprise – your assets and income far outweigh your liabilities and outgoings. Good for you. A dignified retirement awaits. But if not, use this handy calculator to predict your likely longevity, and then assess how long your money will last in retirement. You may be close to covering your needs, you may need a full Age Pension or you may find that you are seriously overstretched. In which case, the next step is vital.

Seek help
Being financially strapped does not mean all is lost. If you feel your debt is out of control, then talking to a financial professional is the next requirement. If you have a trusted contact, perhaps a family accountant, then that is a good start. If you do not know someone who you can trust, and do not have enough to pay for advice, then a financial counsellor is probably the best port of call. Different states offer different services, through varying agencies, but this national number is helpful as you will be automatically transferred to the right contact in state in which you live.

National Debt Helpline 1800 007 007 
The free hotline is open from 9:30am to 4.30pm, Monday to Friday

Find a financial counsellor in your area

Last, but definitely not least, take a deep breath and remind yourself that, whatever your situation, it is important to remember that only you can control your own finances. It’s fine to blame the banks for too-easy access to equity in your home. It’s much more helpful to remember that it was you who accessed this money and spent it. Poor health, or bad luck in marriage or employment are external factors over which we often have little control. But if your future retirement prospects are marred by this misfortune, it is only by facing this unpalatable reality and determining to access the help required to deal with it, that you will deal with the debt in your life. 

What about you? Are you living debt-free in retirement? Or have life circumstances spoilt the journey? Or are you one of the rare individuals who admits that they didn’t save enough?





    COMMENTS

    To make a comment, please register or login
    MICK
    3rd Nov 2016
    10:43am
    An average retiree debt of $158 000 may not be as bad as it seems. Traditionally once retired couples downsized their homes, paid off their debts, invested the rest and lived off the proceeds. The above debt is not huge by today's standards so if retirees have a $2 million home then debt can easily be repaid on the sale of this home.

    The issue which needs to be talked about may be more around parents financing their children's homes and/or going guarantor. I understand that this is a growth industry and I have written before about the inability of many genY to save money because they also want all the bells and whistles and a lifestyle.....so the mum and dad banks often need to kick in to get children into their own homes. That is dangerous in retirement and will certainly leave many parents with a debt hanging over theirs heads.
    Old Man
    3rd Nov 2016
    4:44pm
    Yes MICK and add in those times where the kids buy an overpriced property put in nothing, get mum and dad to be guarantors, miss repayments and then get sold up. Mum and dad might be limited guarantors but they aren't guaranteeing the first bit of the loan, it's the last bit. We quite often read of shattered retirements because of uncaring kids.
    Cranky
    3rd Nov 2016
    11:43am
    If the Government would give us a decent pension maybe we would survive. We are e of richest nations in the free world and et our governments treat it pensiners the worst in the free world. It is all right for the millionaires to sprook how to survive but let them try and survive on the lousy pension we get and see how they get on. As I said yesterday it is time that all pensioners become unionized and took on the Governments for a better deal instead of the politicians filling their. I also feel that it is time for politicians to pay further own retirement instead of taking it from the taxpayer and further, that the politicians wait u they are the same age a current pensioners before they become eligible for the aged pension. What have politicians ever done to deserve what they get and why should they be treated in different to any other worker. At the present time politicians can serve a few years in parliament and retire on a pension and the go out and get another job and retain their pension, but if an aged pensioner earns above $240.00 a fortnight he loses part of their pension. Where is the fairness - Max Jackwitz
    Rae
    3rd Nov 2016
    12:14pm
    Politicians certainly get far too many perks so you have a point there.

    However most retirees have had a good run. If suffering financial woe from divorce, fraud, disability or illness within the family then the pension is the only option. I sympathise.

    Most retirees if they had managed the money should not need a government pension.

    I've seen people update the car every two years, buy and upgrade houses several times costing around $30 000 a pop just in fees and taxes. Replace caravans. Spend money blithely with no though to what they'd do when work finished.

    Those very expensive cars and houses must now cost a bomb to insure, pay rates and maintain.

    The OAP has always been known. It wasn't a secret.

    Some people saved for decades so they wouldn't have to bear that poverty in old age and they get nothing given to them at all.
    Old Geezer
    3rd Nov 2016
    1:39pm
    It would not matter how much money was given in the OAP it would never be enough for most people.

    The problem is people adjust their lifestyle to their income which is just stupid in that nothing can be saved and in a lot of cases is finance by debt.
    Radish
    3rd Nov 2016
    6:47pm
    The best advice I got was when you get an increase in salary just bank it. If you are able to live on what you already earnmt why not put it away for the "rainy day".
    Triss
    5th Nov 2016
    7:32pm
    As I've said before, Cranky, I'll stand beside you on that.
    I understand that the majority of ex pollies have used up whatever they paid whilst in parliament and are now completely funded by taxpayers.
    Retired Knowall
    3rd Nov 2016
    11:43am
    The answer to this issue is Education. It will be difficult at first because most of our current teachers are financially illiterate. Basic financial management must be taught as a priority to ensure future generations are self sufficient. It's already too late for those Baby Boomers and Gen Y's that have gone through life without these basic skills and knowledge.
    part of the curriculum could expose these students to the lifestyle they will have if they ignore the basics and are forced to exist on the pension.
    Rae
    3rd Nov 2016
    12:18pm
    Good idea and it is never too late. Perhaps a course could be designed to teach in the local community college system or even online.

    Starting with basic budgets.

    Record keeping.

    Getting out of debt.

    Good debt vs bad debt.

    Bank products.

    Superannuation.

    You could go on and on. Perhaps YLC could do a series of articles under the financial literacy topic heading.
    MICK
    3rd Nov 2016
    12:27pm
    I've got news for you Retired Knowall: teachers DO educate students. The trouble is you can lead a horse to water but you can't make it drink.
    Teachers do not need ANOTHER burden added to their already politician regulated curriculum.
    Radish
    3rd Nov 2016
    4:28pm
    I agree Mick. The teaching comes from the home at an early age. Monkey see, monkey do as the old saying goes.

    Parents in debt, kids will follow the example.

    It is NOT up to teachers to bring up peoples' children.
    Chris B T
    3rd Nov 2016
    5:16pm
    In the 60's and 70's high school students had Commerce as part of the Curriculum. I can remember the ledger sheet incomings and out goings. I belive commerce was droped some time ago pitty.
    Retired Knowall
    4th Nov 2016
    3:53pm
    Well Mick, you can FAIL the HSC and still get into Uni as a teaching student. I've had 2 boys go through the education system and witnessed the One Subject Wonders muddle along trying to teach our kids.
    They can't EDUCATE students if they haven't got a clue themselves.
    How can Financial Management be taught at home when most Parents haven't got a clue.
    I agree a lot wont learn because they can't or don't want to, but they need to understand they will spend their retirement on the OAP at the mercy of the Govt.
    Old Geezer
    3rd Nov 2016
    1:28pm
    Debt can be very good if structured correctly and you can make more money that you pay in interest. In fact I never use debt unless it makes me more than I pay in interest.
    MICK
    3rd Nov 2016
    1:57pm
    Always good to be able to predict the future. And houses never go down in price...........
    Old Geezer
    3rd Nov 2016
    3:12pm
    I never try and predict the future Mick and I'm not keen on owning houses either.
    ex PS
    8th Nov 2016
    11:51am
    MICK, I would respectfully submit that in certain circumstances house valuations do fall, I have witnessed such a fall myself when the houses around me were overvalued for around 18 months and then bought back to more realistic prices when the buble burst.
    It does not happen often, but it does happen, I feel that it will happen on a larger scale in the near future.
    When a product becomes too expensive for the punters to buy market forces will eventually correct that market.
    Cheezil61
    3rd Nov 2016
    4:07pm
    Not very helpful..we don't all live in the city with $2m homes to sell or bulk super (yes many of us have had to pay out in divorce settlements (some more than once!) & start again at 50+ yrs old, we keep working long hard hours to make ends meet & we drive old bombs that break down & cost money to fix & we have old houses that require maintenance/repairs & still have families/kids/grandkids(Xmas presents, visits, etc) & elderly parents who need us & sometimes cost money (driving to appts/outings, etc & general care etc)..And NO we dont buy houses, etc for our kids (we teach them to work for it like we have to until we are 90 it seems)..it is not easy but we live the dream that we may retire & have a pension SOME day but those in power prefer to give our tax money to everyone except those that contribute/pay in to the tax system.... & we do not trust financial advisors & they cost money in some way shape or form..no not much hope..oh & death means funeral costs so that's no help..
    Radish
    3rd Nov 2016
    4:26pm
    Anyone approaching retirement should set the wheels in motion to make sure they are as debt free as possible.
    Old Geezer
    3rd Nov 2016
    4:48pm
    Best thing I did was retire with big debts. Today I have a lot more assets then I had back then and no debt.
    Sundays
    3rd Nov 2016
    4:57pm
    Ive seen quite a few people retire, then go back to work because they can't manage. Before you retire try and pay down debt. Also work out a budget so you know how much you spend and will need in retirement. As for helping the kids, might be ok when you're working but too stressful in retirement. Just say no.
    Retired Knowall
    4th Nov 2016
    3:55pm
    Just before retirement is TOO LATE. Setting a Budget and having a sound financial plan should be in place by 25.
    Zoro
    3rd Nov 2016
    6:30pm
    Retirement is our biggest lesson in delayed gratification.
    Old Geezer
    4th Nov 2016
    11:14am
    Retirement to me was like a door opening I could do all the things I wanted with someone stealing my time.
    Zoro
    3rd Nov 2016
    6:41pm
    It really is a "no brainer" - never spend more than you earn, always save at least 10% of what you earn (from your first pay packet), and only borrow on appreciating assets, don't expect to be taught everything by others when you can use your own powers of evaluation, and expect to pay your own way. The tale of the ant and the grasshopper continues to be repeated in reality.
    Radish
    3rd Nov 2016
    6:44pm
    I read the Barefoot Investor every week in the Sunday paper and he does not advocate parents going Guarantor for their children. Ok if you are fabulously rich but it is fraught with danger. If the banks will not lend because they are not a good risk why on earth would a parent put their home on the line to go guarantor.

    I have heard of parents going guarantor...the marriage breaks down and guess who is left holding the can!
    Old Geezer
    4th Nov 2016
    11:13am
    NO I would never go guarantor for anyone.

    I lent my kids their deposit and it is paid back when they sell.
    ex PS
    8th Nov 2016
    11:55am
    O.G has a very good option, this way if the deal falls through the most he will lose is the initial deposit. Though from what he has shared about the way he has guided his family his risk is negligible.
    Old Geezer
    8th Nov 2016
    3:44pm
    Nope I don't lose my deposit as it becomes a debt to be repaid either to me or my trust after I die. Yes I have a mortgage over their properties so it has to be paid before any divorce is settled as well.
    Cheezil61
    4th Nov 2016
    1:37pm
    Oh & what's that you say about saving/money in the bank.. if I still have more than $100 in my bank account when each pay day arrives I consider myself rich/lucky! I'm sure there are plenty like me that also think the supposed answers/solutions (& many of the comments in this article is a joke, by someone who doesn't really understand it isn't so easy to change situations/circumstances, even when you work hard & earn reasonable money.. perhaps if we live in a bus/caravan/campervan/tent (as I am considering) the debt problem & worries would magicly disappear!
    PIXAPD
    7th Nov 2016
    9:25am
    Do not have debt, owe nothing, many owe and to them it means woe; but wisdom teaches this....'The rich rule over the poor and the borrower is slave to the lender'
    Retired Knowall
    7th Nov 2016
    1:33pm
    And "He that expects Little is seldom disappointed".
    johnp
    18th Sep 2017
    10:35am
    Good info in the above except for one thing : "Find a financial counsellor in your area".
    Most financial counsellors I have come across are interested mainly in their own commission and they make themselves look better by maximising the clients Centrelink benefits which is counter to what the Govt wants. Also many people over their productive years continually buy mainly bric a brac junk, fill up their houses with it and become hoarders like you see on TV. Countries like China are the main beneficiaries of this.


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles