Page 2 - FWP Wealth-Adviser-Issue-121 (FWP)

ISSUE 121
SEPTEMBER 2025

we wake up one day with the prospect of facing either a Understanding the distinction between good debt (used
voluntary or an involuntary retirement. With this in mind, for appreciating assets) and bad debt (for depreciating or
reducing or eliminating debt before retirement should be a consumable goods) helps in deciding which to target most
central goal for anyone seeking a secure and enjoyable later aggressively for early repayment.
life.
Step Three: Making the Most of Assets and
Step One: Getting Organised and Knowing Your Income
Numbers As retirement draws closer, it becomes crucial to max-
The journey to a debt-free retirement begins with a clear- imize all available assets and income streams in service of
eyed appraisal of your current financial situation. Work out debt reduction. One often-overlooked strategy is reviewing
what debts you have and what they total. Compare what you how cash or savings are allocated: If you’ve got cash in a
earn, owe and spend and consider where you might be able transaction account, could you be earning more if it was
to cut back. This means taking stock of every credit card, invested elsewhere, or even placed in an offset account
personal loan, mortgage, and outstanding bill. linked to your home loan?
A comprehensive budget is your foundational tool. For homeowners, downsizing to a smaller, more manage-
According to MoneySmart, the first critical step is to know able property can unlock equity to retire debts and bolster
what you owe. List all debts, specifying balances, interest retirement savings. The Australian government also allows
rates, and minimum repayments. From there, track income certain downsizers to contribute up to $300,000 tax-free
and expenses, identifying areas for savings that can be into super from the sale of the family home, subject to
redirected to debt elimination. eligibility.
Financial advisers and reputable online tools can provide Superannuation offers another avenue: one can consider
budget planners and calculators to make this process more consolidating multiple super accounts (to reduce fees),
manageable. Early and honest budgeting—ideally started adjusting risk profiles as retirement approaches, and as-
a decade or more before retirement—gives time for small sessing the possibility of making extra contributions while
changes to achieve meaningful results. As one adviser notes, still earning. However, using super to pay off debts should
preparing a budget 10 to 15 years ahead of retirement means be considered carefully. For those who don’t get to choose
you can really understand your complete financial picture. when they retire, one option is to use a lump sum from your
super to reduce or pay off your mortgage. However, research
Step Two: Prioritising and Managing Debt shows that only 15% of Australians plan on taking this
Repayments option.
Once every liability is visible, it’s time to develop an Other options include selling investments, using savings
effective repayment plan. Look into whether you could or inheritance, or optimising the income-generating poten-
benefit from rolling your debts into one loan… Shop around tial of assets such as shares or property. Consider seeking
for providers with lower interest rates and no annual fees. advice about “debt recycling,” a strategy where income from
Debt consolidation—merging multiple debts into a single, investments is used to service investment loans even during
lower-interest product—can save on interest and simplify retirement—though this requires a careful balancing of risk
repayments. and reward. Ultimately, aligning asset and income strategies
Prioritisation is key. Start with bad debt, such as credit with your risk tolerance and retirement goals is essential.
cards and payday loans, which carry the highest inter-
est rates. The “snowball” method, endorsed by ASIC’s Step Four: The Value of Professional Advice and
MoneySmart, involves paying off the smallest debts first Support
for a psychological boost, while always meeting minimum Navigating debt reduction as retirement approaches can
payments on all accounts. The quickest—and most motivat- be complex—emotions, risk tolerance, and regulatory rules
ing—way to get out of debt is the snowball method. You start all come into play. The good news is, seeking professional
small, and pay off your debts one by one. advice significantly increases both confidence and positive
Where possible, negotiate with creditors for better outcomes. You could also talk to your adviser or use our
terms or seek hardship assistance if paying bills is difficult. directory to find one near you.
Refinancing larger debts like mortgages—especially when A qualified adviser can:
interest rates are favourable—can also cut costs in the long • Develop and monitor a viable debt repayment plan
run. For secured debts, such as car loans or home equity • Identify refinancing and consolidation options
loans, ensure that repayments are manageable within your • Optimise superannuation and investment structures
pre-retirement income. • Keep strategies compliant with changing regulations

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