One in three are retiring in debt this year with the average retiree owing £17,460, according to over-55 specialist adviser Key.

Key’s research has found that retirees also have credit card, bank loan and mortgage debt which they carry into retirement.

Of those in debt, 48% still owe money on credit cards, 31% have an outstanding bank loan and 14% will still have a mortgage.  While the average amount owed by those in debt is £17,460, 8% owe over £20,000 and 4% do not actually know how much they owe.

Clearing debts will be a drag on their retirement finances – on average they expect to take around three-and-a-half years into retirement to be debt-free. However, one in eight of those in debt expect to owe money for nine years or more with a third of them saying they will never pay off the money they owe.

Will Hale, CEO at Key, said: “With changes to the state pension due to start coming into effect this year, it is vitally important to understand the challenges and aspirations of the “retirement class of 2020”.

“Today’s findings suggest that while most people work hard to retire debt-free, this is not the reality for one in three people who need to consider how they can service and repay over £17,000 in borrowing from their retirement nest egg.

“Even those with generous incomes may find this a stretch and people are taking an average of three-and-a-half years to clear the debts they retired with – at a time when they should be enjoying an active retirement and worrying less.”

What are the options for retirees?

There are many options to minimise personal debts approaching retirement. First of all, it would be advisable to speak to an independent financial adviser well in advance of your retirement age.

Retirement planning is key to minimising personal debts in retirement – although you sometimes can’t avoid those one-off unexpected emergencies, for example a terminal illness or sudden ill-health.

“Contributing to ISAs, so that investment income and growth is tax free, may also be beneficial…Building up extra funds in retirement can provide for more choice in later life and the ability to weather higher inflation.”

Kay Ingram, director of public policy at national IFA firm LEBC said: “When planning for retirement, it is essential to factor in the potential cost of care and to make some provision for this. Where there is a surplus of retirement income in the early years of retirement, saving for later life can continue with the benefit of tax relief. While it may feel counter intuitive to save into a pension plan once retired, tax relieved savings can be made until age 75.

“Contributing to ISAs, so that investment income and growth is tax free, may also be beneficial…Building up extra funds in retirement can provide for more choice in later life and the ability to weather higher inflation,” Ingram concludes.

Some retirees opt for equity release in order to fund or compliment their retirement lifestyle.

However, Key’s CEO, Will Hale said in a statement that: “Equity release is not right for everyone but it is vitally important that people are not prevented from considering how their largest asset, their home, can support them in retirement by misconceptions and unanswered questions concerning later life lending options. There is a lot of help available online on how to budget for retirement and working with a financial adviser in the run-up to retirement can make a massive difference in being as retirement ready as possible.”