For many of us long term debt is something we become quite accustomed to. Mortgage lenders offer 25-30 year terms so it not hard to see why we become complacent with debt over time. The good news is there are a number of things you can do now while you’ve still got time on your side and earning an income to repay your debt by retirement.
Focus on your debts
Pay attention to your debts regularly, run calculations on a home loan repayment calculator (all the banks have these as well as the government’s Money Smart website). Look at whether you can afford to make extra repayments and set this up as an automatic process so that it happens consistently. If you receive a tax return, bonus or windfall, pay this onto your loan. Shop around for providers with low interest rates and no annual fees.
Get serious about a budget
It is really important to understand what money you have coming in, what expenses you have and what might be left over.
Reduce or remove unnecessary spending. Make sure you have a savings buffer for emergencies, then you can consider increasing your loan repayments.
Consider what money you might have access to in retirement
The money you use to fund your life in retirement will likely come from a range of different sources, such as:
Super – Generally you can start accessing super when you reach your preservation age (for most of us that is age 60). Knowing your super balance is a crucial part of planning for retirement, as it’s one of our biggest assets.
If you’ve got more than one super account, there may also be advantages to rolling your accounts into one, such as paying one set of fees, which could save you hundreds of dollars each year. However, there could be other fees and features lost in the process, so seek advice first. You should also check your investment option aligns with your tolerance for risk.
Some people plan to use their super balance to repay their debts but will this leave you with enough to live on in retirement? This needs careful consideration.
Other Investments – do you own investment properties or shares. Are you going to use these to pay you an income stream in retirement or will you sell these assets to repay debts? Taxation and timing also must be considered.
Savings – record low cash rates make our savings account less attractive. Review your options, could you be earning more if it was invested elsewhere, or even placed in an offset account linked to your home loan to reduce what you pay in interest?
Consider downsizing your home
Home ownership is the fourth pillar of retirement in Australia (superannuation, savings and the age pension are the other three pillars). If your large home is now empty as the kids have fled the nest, you might be interested to know that when you reach age 65, you can make a tax-free contribution to your super of up to $300,000 using the proceeds from the sale of your main residence. There are eligibility rules, however downsizing is fast becoming a way for people to release equity built up in their homes.
Think about working a longer
I said longer, not harder! Earning an income can help you to boost your debt repayments as well as your super balance so that you have a more comfortable lifestyle in retirement. As we are living much longer, being retired for decades may not be appealing to everyone as work provides a sense of purpose, social interaction as well as income. Consider reduced hours or days to help you repay your debts.
Are you on track to a debt-free retirement? If you are not sure, then reach out for a complimentary meeting.
This information contained in this document has been provided as general advice only. The contents of this document have been prepared without taking account of your personal objectives, financial situation or needs. You should, before making any decision regarding any information, strategies or products mentioned in this document, consult with your GPS Wealth Ltd financial adviser to consider whether it is appropriate having regard to your own objectives, financial situation and needs