One in six approach retirement in debt

24 January 2014

One in six of those planning to retire this year will have outstanding average debts of £24,800 each, according to new research.

The Prudential's Class of 2014 study shows that 56% of those with debts owe money on credit cards, while 44% will not have paid off their mortgages by the time they retire.

The study – which tracks the future plans and aspirations of people planning to retire in the next 12 months – found debt repayments average £220 a month – 17% of their expected retirement income. And those with debts expect it to take on average four years to pay them off.

However, a quarter of those retiring said their monthly repayments would amount to more than £400, with 18% expecting to take seven years or more to clear their debts. A further 2% of the debt-ridden Class of 2014 believe they will never clear their debts.

Women have done more than men to cut their debts on retirement. On average, women retirees will owe £20,700 this year - compared to £28,100 last year. Men have managed to cut their debt but it's still a whopping £28,400 - down from £33,800 last year.

On a positive note, the average amount owed by people retiring has fallen substantially for the second year running. The amount owed by the Class of 2014 is nearly 21% lower than the £31,200 average debt in 2013 and 35% lower than the £38,200 owed in 2012.

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The proportion of people with overdrafts also dropped from 19% last year to 16% in 2014, while those with bank loans outstanding fell from 21% to 14% this year.

Downward trend

Stan Russell, a retirement expert at Prudential, said: "Our new research shows a welcome downward trend in the debts people are taking with them into retirement.

"However, retirement incomes remain under pressure and it is clearly sensible where possible to ensure that debt repayments do not eat into incomes too much or for too long. Paying off debts as early as possible – and ideally while still working – will help to increase disposable income in the early years of retirement.

"People approaching retirement should consult a financial adviser or retirement specialist to help them plan their finances. You can also access free information from the Pensions Advisory Service.

"Debt does not have to be a major issue in retirement as long as people have the income to make repayments and a realistic repayment plan in place. Citizens Advice Bureaux can also provide free help and advice."

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