posted in: Building Wealth

Should you pay off debt before you retire?

It’s one of the most common assumptions people make as they approach retirement: clear every dollar of debt before you stop working. As a retirement planning advisor Sydney, it’s something I’m asked about constantly.

The honest answer is that it depends on your situation, the type of debt you hold, and how it’s structured. But understanding a few structural points will help you avoid quietly closing a door you’ll later wish you’d left open.

In this article, I’ll walk through why keeping certain facilities open can be smart, why banks treat you completely differently the moment you no longer have a wage, why your credit cards deserve attention before you retire, and when carrying a bit of debt is a deliberate strategy rather than a mistake. In my experience as a financial advisor Sydney, the right answer is rarely as straightforward as it first seems

Why You Might Want to Keep Your Mortgage Facility Open

Picture a $300,000 home loan with $300,000 sitting in an offset account against it. On paper the loan is costing you nothing in interest. The instinct is to close it out entirely. In many cases, that’s the wrong move.

We would encourage you to leave that facility open because once you’re retired and have no wage, the banks are very unlikely to give you a home mortgage.

That’s the part most people miss. Once the salary stops, your borrowing power largely disappears, so a facility you close in your fifties can be almost impossible to reopen in your sixties. The point of keeping it is not to carry debt for its own sake. It’s to keep access to money you might one day need.

But that gives you the ability to grab that cash if you need it. If a terrible emergency happens to you and you absolutely need $300,000, it’s there.

The key is structuring it so it doesn’t quietly drain you. A loan that’s fully offset costs nothing to hold, and we can normally set things up so the repayments don’t hit your cash flow. You get the safety net without the cost.

The Kind of Mortgage You Don’t Want in Retirement

Keeping a facility open only makes sense when it isn’t bleeding you. There’s a clear line between a loan that’s parked and ready, and a loan that’s actively eating into your retirement income.

We don’t necessarily want you keeping a big mortgage in retirement that’s not offset and costing you money and hurting cash flow with mortgage repayments. That might not be the best strategy, but if you’ve got something fully offset, then let’s leave it in place.

So the test is simple. If the debt is fully offset and costing you nothing, the access it gives you is worth keeping. If it’s an unoffset mortgage chewing through your cash flow every month, that’s a different conversation, and usually not one that ends with keeping it.

Set Up Your Credit Cards Before You Stop Working

The same lending logic applies to something far smaller than a mortgage. I’ll be upfront about my own view here.

I’m not a huge fan of credit cards myself. They can be effective for the right person.

But personal preference aside, there’s a practical trap worth flagging, because it catches people off guard at exactly the wrong moment.

What surprises a lot of people as they retire is that they go to get a credit card and banks won’t give them a credit card. So it’s important to have them set up ready for retirement if that’s what you want to do.

If you think you’ll want a card in retirement, the time to organise it is while you still have an income the bank can assess. Set it up before you need it, not after.

When Debt Still Makes Sense: Leverage and Legacy

For most people, going into retirement with significant debt is something to avoid. But there’s a genuine exception, and it comes down to the size and strength of your portfolio.

Borrowing money is a risk. Having debt in retirement is generally not advisable. But for some people with substantial portfolios, they’re in a position where they can take on that level of risk because they can easily fund their living expenses.

For those investors, a measured amount of debt isn’t a vulnerability, it’s a lever. They can comfortably cover their lifestyle, their travel, and everything they want to do, while keeping some borrowing working for them in the background.

They can keep a bit of leverage inside their portfolio to boost longer-term returns and create a bit of a legacy asset. But again, it really depends on your situation.

That last line is the whole point. Leverage in retirement is a strategy reserved for people with the capacity to absorb the risk, not a default setting.

So, Should You Carry Debt Into Retirement?

There is no universal answer. It depends on whether your debt is offset or costing you, the size of your portfolio, your cash flow, and what flexibility you want to keep available later.

What I can say with confidence is that the goal isn’t to be debt free at any cost. The goal is access and sustainable cash flow. A facility that’s fully offset and quietly available can be worth far more than the satisfaction of closing it, because the bank that happily lends to you today may not lend to you at all once the wage stops.

Book a quick Wealth Planning Consultation and we’ll help you see where you stand, what’s possible, and how to make it happen.

Book a Wealth Planning Consultation with our retirement planning Sydney team and we’ll help you see where you stand, what’s possible, and how to make it happen.

• Stop feeling uncertain about your financial future
• You won’t need to make big sacrifices
• You won’t drown in paperwork or endless meetings

Get started here.

About the Author: Ethan Stein is a financial planner with expertise in investment structuring, superannuation strategy, shares, property investment and other planning strategies. This article reflects general financial commentary only and does not constitute personal financial advice.

Financial Disclaimer: The information provided in this article is for general knowledge and informational purposes only and does not constitute financial advice. Individual circumstances vary significantly. It is essential to consult with a qualified and licensed financial planner before making investment decisions. Past performance of any asset class is not indicative of future results.