One of the most common (and avoidable) traps I encounter is clients taking on debt or projects that will outlive their career. This often leaves them scrambling for solutions when their career ends, especially if it ends prematurely.
For example, a client purchased a negatively geared property at age 63 when he intended to retire at 65. Property investing is a ten year plus investment. Further to that, the property was part of a development in a mining town which has stalled as the proposed coal mine didn’t eventuate.
Another recent example is clients who built their dream home in their early sixties. The build ended up costing them more than they expected and now they are carrying the debt of the new home while they move into retirement.
At what age should you look to have your debt cleared?
The age when you should look to have your debt cleared can vary depending on your personal situation, however; a target would be around the age of 55. Why at that age? Debt can become a problem for households when they cannot afford to repay it should their situation change*.
As you get older, the chance of an event occurring that may impact you financially goes up. For example, suffering from a traumatic illness (or having a spouse suffer a traumatic illness)**. We need to be realistic about our age. Life and jobs don’t go on forever.
However, if you are 55 and mortgage free you are better equipped financially to weather this type of event. Plus you can enjoy the surplus cash flow liberated from the end of your mortgage to build your wealth or reward yourself with travel, especially if this does not generate new debt.
Tips to follow:
- Have your home loan period limited to your 55th birthday.
- Set a retirement income stream goal for age 65.
- Limit all projects – new homes, businesses etc. – to be debt free by 55.
- Remember we are all running out of time.
Your financial plan is not just about investment returns, it is about avoiding pitfalls and sensibly handing your money. Speak to your financial advisor about the right strategy for you.
Sources: * AMP Natsem Report: Buy Now Pay Later and **https://canceraustralia.gov.au/affected-cancer/what-cancer/cancer-australia-statistics
David Baruffi is an authorised representative and credit representative of AMP Financial Planning. Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee 232 706.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
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