Retiring in debt: spare time but no spare cash

4 April 2008

For some, retirement is a long-awaited opportunity to sit back and enjoy the things they’ve spent their whole lives working for. For others, it’s an unwelcome change: why should they retire when they feel they could go on working for years?

Whatever their attitude, most people approaching retirement know it’ll mean a reduction in income. But on top of this ‘traditional’ drop in salary, today’s older workers face a new problem which wasn’t really an issue when their parents and grandparents retired.

A study* by Help the Aged and Barclays has revealed that 1 in 4 people approaching state retirement age still have outstanding consumer credit commitments – and that the average borrower in their late 50s / early 60s has four times as much unsecured debt as someone in that group ten years ago. It seems today’s older workers are far more likely to need debt help before they retire, or even after.

Pensioner poverty
Levels of debt may be increasing in every age group, but younger people simply have more time to pay it off before they retire. As long as repayments don’t stretch their finances too far, their debts aren’t necessarily a problem.

In the past, most people have managed to pay off all or most of their debt before they come close to retiring. But today, more and more people come to the end of their working lives in financial difficulty and end up retiring in debt, struggling to manage their debts on a reduced, fixed income.

Understandably, Help the Aged is concerned about the impact of debt on older people: “This report shows that there are some worrying trends in credit usage that could represent a debt crisis for those coming up to retirement,” said David Sinclair, Help the Aged head of policy. “We know from working with older people suffering from chronic debt problems that even owing a relatively small amount of money can cause untold misery for those living on a fixed income.”

The study also found that:

• Debts may already be forcing people to delay their retirement.
• Older people use credit cards to cover essentials such as bills or even food.
• Many households headed by an older person are still repaying their mortgage:
  • 1 in 2 households headed by someone in their 50s,
  • 1 in 8 households headed by someone in their 60s, and
  • 1 in 25 households headed by someone aged 80-84.
• For people in their 50s-60s, arrears on credit commitments are most common
• For people aged 70 or over, utility bills are the main area of financial difficulty.

* The research was commissioned to support the work of Your Money Matters, a nationwide money management programme run by Help the Aged in partnership with Barclays.

Offering older people free, impartial money management and debt advice, the programme aims to:

• improve older people’s knowledge, skills and confidence to manage their money,
• provide practical, individual assistance to older people to overcome money management and debt problems, and
• raise awareness of the issues of older people, debt and money management.

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Gregory Pennington is a member of DEMSA whose code of conduct is approved by the Office of Fair Trading.