BY WEALTH ADVISER
Introduction: The Impact of Debt on Retirement Wellbeing
For many Australians, the vision of retirement conjures up images of relaxation, freedom, and well-earned peace of mind. Yet, for an increasing number of retirees, the reality includes an unwelcome companion: debt. While many Aussies will carry some debt into retirement, the good news is, there are a number of things you could do now while you’ve still got time on your side and earning an income. The growing prevalence of retirees carrying mortgages, personal loans, or credit cards into retirement is a pressing concern, often leading to stress, reduced lifestyle choices, and even the necessity to delay retirement itself.
Recent research confirms this trend: 28% of Australians approaching retirement (aged 50 to 64) hold a mortgage, while 14% of current retirees still have mortgage debt. The psychological and practical implications are significant. As one expert notes, a lot of us get caught up in the day-to-day, and don’t set aside the time to plan for retirement properly – so we wake up one day with the prospect of facing either a voluntary or an involuntary retirement. With this in mind, reducing or eliminating debt before retirement should be a central goal for anyone seeking a secure and enjoyable later life.
Step One: Getting Organised and Knowing Your Numbers
The journey to a debt-free retirement begins with a cleareyed appraisal of your current financial situation. Work out what debts you have and what they total. Compare what you earn, owe and spend and consider where you might be able to cut back. This means taking stock of every credit card, personal loan, mortgage, and outstanding bill.
A comprehensive budget is your foundational tool. According to MoneySmart, the first critical step is to know what you owe. List all debts, specifying balances, interest rates, and minimum repayments. From there, track income and expenses, identifying areas for savings that can be redirected to debt elimination.
Financial advisers and reputable online tools can provide budget planners and calculators to make this process more manageable. Early and honest budgeting—ideally started a decade or more before retirement—gives time for small changes to achieve meaningful results. As one adviser notes, preparing a budget 10 to 15 years ahead of retirement means you can really understand your complete financial picture.
Step Two: Prioritising and Managing Debt Repayments
Once every liability is visible, it’s time to develop an effective repayment plan. Look into whether you could benefit from rolling your debts into one loan… Shop around for providers with lower interest rates and no annual fees. Debt consolidation—merging multiple debts into a single, lower-interest product—can save on interest and simplify repayments.
Prioritisation is key. Start with bad debt, such as credit cards and payday loans, which carry the highest interest rates. The “snowball” method, endorsed by ASIC’s MoneySmart, involves paying off the smallest debts first for a psychological boost, while always meeting minimum payments on all accounts. The quickest—and most motivating—way to get out of debt is the snowball method. You start small, and pay off your debts one by one.
Where possible, negotiate with creditors for better terms or seek hardship assistance if paying bills is difficult. Refinancing larger debts like mortgages—especially when interest rates are favourable—can also cut costs in the long run. For secured debts, such as car loans or home equity loans, ensure that repayments are manageable within your pre-retirement income.
Understanding the distinction between good debt (used for appreciating assets) and bad debt (for depreciating or consumable goods) helps in deciding which to target most aggressively for early repayment.
Step Three: Making the Most of Assets and Income
As retirement draws closer, it becomes crucial to maximize all available assets and income streams in service of debt reduction. One often-overlooked strategy is reviewing how cash or savings are allocated: If you’ve got cash in a transaction account, could you be earning more if it was invested elsewhere, or even placed in an offset account linked to your home loan?
For homeowners, downsizing to a smaller, more manageable property can unlock equity to retire debts and bolster retirement savings. The Australian government also allows certain downsizers to contribute up to $300,000 tax-free into super from the sale of the family home, subject to eligibility.
Superannuation offers another avenue: one can consider consolidating multiple super accounts (to reduce fees), adjusting risk profiles as retirement approaches, and assessing the possibility of making extra contributions while still earning. However, using super to pay off debts should be considered carefully. For those who don’t get to choose when they retire, one option is to use a lump sum from your super to reduce or pay off your mortgage. However, research shows that only 15% of Australians plan on taking this option.
Other options include selling investments, using savings or inheritance, or optimising the income-generating potential of assets such as shares or property. Consider seeking advice about “debt recycling,” a strategy where income from investments is used to service investment loans even during retirement—though this requires a careful balancing of risk and reward. Ultimately, aligning asset and income strategies with your risk tolerance and retirement goals is essential.
Step Four: The Value of Professional Advice and Support
Navigating debt reduction as retirement approaches can be complex—emotions, risk tolerance, and regulatory rules all come into play. The good news is seeking professional advice significantly increases both confidence and positive outcomes. You could also talk to your adviser or use our directory to find one near you.
A qualified adviser can:
• Develop and monitor a viable debt repayment plan
• Identify refinancing and consolidation options
• Optimise superannuation and investment structures
• Keep strategies compliant with changing regulations
• Ensure government benefits and age pension entitlements are factored in
Many providers and community organisations offer direct support for those facing hardship, including phone and online helplines (like the National Debt Helpline), hardship teams at banks, and specialist financial counsellors.
There are considerable psychological benefits as well. Regular check-ins foster accountability, and the right adviser brings clarity when navigating emotionally charged decisions—such as weighing lifestyle sacrifices against financial security. Without financial advice, only 45% of homeowners with a mortgage are confident they will be able to retire debt-free. However, after receiving advice, confidence levels jump to 63%.
Conclusion: A Call to Action for a Debt-Free Retirement
The dream of a carefree retirement is worth defending— but it relies on taking practical steps as early as possible. There is no one-size-fits-all path to eliminating debt before retirement. For some, it will mean early, disciplined budgeting and consolidation; for others, strategic use of assets and professional guidance. The one universal truth is that action—thoughtful, proactive, and sustained—makes all the difference.
As you contemplate your own journey to retirement, consider the power of getting organised, prioritising repayments, making the most of your assets, and seeking the support of a qualified adviser. Breaking the chains of debt before retirement isn’t just liberating—it may be the most effective investment you can make for a peaceful and prosperous future in Australia.
References
• AMP. (2025). “7 tips to reduce your debts before you retire.”
• JBS Financial. (2013). “6 Smart Ways to Reduce Debt Before Retirement.”
• AustralianSuper. (2025). “Manage Debt To Prepare For Retirement.”
• Australian Unity. (2014). “Planning for retirement when you’re still in debt.”
• MoneySmart (ASIC). (2025). “Get debt under control.”
• Wealth Factory. (2025). “Financial Advice In Minimising Debt In Retirement.”
• Colonial First State. (2025). “Financial advice critical as more Australians retire with debt.” • Unconditional Finance. (2025). “Debt Recycling in Retirement | Keep or Pay Off the Loan?”
