Carrying Debt Into Retirement

Ray’s Take: In a perfect world, when we retire, our debt should already be “retired.” 

But when it comes to retirement these days, the picture is much different for the baby boomer generation than it was for their parents. According to the Consumer Financial Protection Bureau, older consumers are carrying more debt, including mortgages, credit cards and even student loans, into their retirement years. In 2013, the average household headed by someone age 55 or older had $73,211 in debt, according to the Employee Benefit Research Institute.

Successful retirements have one important characteristic in common – flexibility. Fewer fixed expenses and more discretionary expenses means more flexibility. Debt is by definition a fixed expense, and the more debt you carry, the less able you are to weather problems (yours and your children’s) and to enjoy opportunities.

When it comes to the type of debt you may be carrying into retirement, there is “good” debt, “bad” debt and “worse” debt. 

A mortgage is historically considered a “good” debt. This is one that you can carry all through retirement as long as you have created a plan to handle the payments. But those payments limit travel and other retirement dreams. Your mortgage company really doesn’t care how the stock market is doing. However, it’s not necessary that you leave a fully paid-off home to your heirs. But not having to make that payment every month can add a lot of quality to your sleep every night. 

When it comes to “worse” debt, think about credit cards and other consumer loans. If you can’t get rid of the “worse” debt, you should seriously consider extending your retirement date.

Carrying debt into retirement is not something to accept lightly, but it’s generally not worth pulling retirement assets and paying taxes on withdrawals to get rid of it. 

If you have made your retirement budget and everything has to go perfectly to make it work, it is probably better to work a while longer. Life rarely goes perfectly, and retirement is not the time to figure it out on the fly.

Dana’s Take: Before planning your retirement, make sure to read Dan Buettner’s book “The Blue Zones Solutions.” In it, he describes communities where folks live beyond 100 years with little or no dementia or chronic disease. 

After reading about these cultures’ simple and happy lives, I felt like an idiot for chasing the almighty dollar to buy all kinds of material possessions and corporate food. These people live on mostly wild greens, beans, potatoes, goats’ milk and wine. They commune with family, tend a flock and a garden, cook and party.

Experiment in small ways with turning back progress by a couple of centuries and see if it improves your life and health. Retirement may become more affordable with a garden and a goat out back.

Agreeing on Retirement Issues – Start Early
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