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17 Feb 2016

One in five people will retire in debt

New research has revealed that one in five people due to retire this year will do so in debt, AOL Money reports.

According to recently released figures from Prudential´s Class of 2016, some 20% of retirees will owe money when they give up work. This means that one in five retirees will spend the first three-and-a-half years of their retirement paying off the debts they have accumulated while at work, taking around £224 out of their pension income each month.

Of this number, the average debt is a shocking £18,000; but even more shocking is that figure is on its way down. In 2012, the average debt for retirees owing money was £38,200, but this has fallen over the past four years.

However, the proportion of people retiring in the red hasn´t shown any sign of improvement – in fact, it has remained the same for the past five years. Credit cards are still the biggest source of this debt, with more than half (51%) of people expecting to retire in debt owing money on their cards. This is followed by mortgages, with a third (33%) still owing money on their homes when they retire.

The statistics show that some retirees stand to be in real trouble – some 14% think it will take at least seven years to pay off their debts, while nearly one in ten (8%) think they will never be debt-free.

Stan Russell, a Prudential retirement expert, explains that repaying outstanding debts will make the already difficult transition from a working income to a retirement income even harder.

For those approaching their retirement, AOL Money advises that they could consider using the new pension freedoms to repay their debts now – although this is a risky strategy as it could still leave them with less monthly income. Another option is to calculate their assets and free up some equity in their property, either by downsizing or looking into equity release. Both options should be considered carefully and with caution.

Copyright M2 Bespoke 2016

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