Nearly one in three people (32%) will retire in debt this year with an average £20,650 to pay off, new research from Key has revealed.

The equity release adviser stated that those expecting to retire this year are facing debts around a fifth higher than those who finished work last year, although the number of those in debt has remained relatively unchanged from 2020 (33%).

Key’s Retirement Ready 2021 study into the finances and ambitions of people expecting to finish full-time work in 2021 found that the average amount owed by people retiring in debt is £3,190 higher than in 2020, when the figure was £17,460.

The findings were based on a study of more than 2,000 people who intended to retire in 2020 (1,000 people between 18 December and 31 December 2019) and 2021 (1,021 people between 24 March and 8 April 2021). It found that 32% of those retiring in 2021 will be doing so in the red, with men expecting to retire with around 15% more debt (£21,885) than women (£19,068).

Key CEO, Will Hale, said: “While it is good to see that we have not seen a sharp rise in the number of potential retirees finishing work with debt, it is concerning to see that the amount owed has increased by more than £3,000 in just twelve-months.

“This seems to suggest that those who are already in debt are finding it harder than ever to repay their borrowing and expect to be three-years into retirement before they can finally wipe the slate clean.”

Key also suggested the debt burden will take a toll on retirement finances as respondents predicted they will be over three years into retirement before being debt free, while one in nine (11%) do not know when they will be completely clear. 

While fewer potential retirees had credit card debt than in 2020, having dropped from 48% to 40%, and mortgage borrowing remaining stable at 31%, the study found that borrowing on all other methods increased.  The number using their overdraft has increased from 10% to 17% in the last year, as has the proportion relying on family and friends, which is up from 8% to 10%.

Use of hire purchase agreements jumped from 2% to 15% in 2021 while the use of bank loans also increased, up from 1% to 14%.
 
“Unfortunately, trying to repay debt from a fixed income while still maintaining a good standard of living can be extremely difficult and people are likely to struggle to achieve this ambition,” Hale added.

“Before their borrowing spirals out of control, they need to speak to a specialist later life adviser how will be able to help them make sustainable choices around how they manage what they owe.
 
“Modern equity release products allow customers to repay capital as well as interest so in the right circumstances they can help people to successfully manage their borrowing.”

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