Without a doubt, being debt-free can give you a feeling of independence. When you have no debts, you have complete control over your finances, making it an ideal retirement situation. However, reality can sometimes be a little different, as we all know from experience.
In a perfect world, we would all be debt-free. And before we retired, we would undoubtedly pay off our credit cards, auto loans, and mortgages. But that’s not always possible. And sometimes, it’s not even the best thing to do. Debt isn’t always bad, as I touched on in My Top Ten Recommendations on page 3. Indeed, there is a widely accepted differentiation in the financial domain between “good debt” and “bad debt.” ” But you have to know the difference. Additionally, you need to determine how much debt you can manage comfortably on your retirement income in order to prevent debt from derailing your plans. Here are some ways to go about it.
Retirement should be a time to relax and enjoy the fruits of your labor. However, for many Americans, retirement is marred by debt. In fact, a recent study by the Center for Retirement Research at Boston College found that 60% of Americans age 65 and older carry more debt than they did 30 years ago. This is a significant increase, and it has serious implications for the financial security of retirees.
What is retirement debt?
Retirement debt is any debt that you carry into retirement. This can include mortgages, credit card debt, student loans, and other types of loans. Retirement debt can be a major burden, as it can make it difficult to cover your living expenses and save for the future.
Why is retirement debt on the rise?
There are several reasons why retirement debt is on the rise. One reason is that people are living longer. This means that they have more time to accumulate debt, and they also have more time to spend down their savings.
Another reason for the rise in retirement debt is that people are retiring with less money than they used to. This is due to a number of factors, including the decline of traditional pensions, the rising cost of healthcare, and the stagnant wages of many workers.
What are the risks of retirement debt?
Retirement debt can have a number of negative consequences. It can make it difficult to cover your living expenses, as you will have to use a portion of your retirement income to pay off your debts. It can also make it difficult to save for the future, as you will have less money available to invest.
In addition, retirement debt can increase your stress levels and make it difficult to enjoy your retirement years. It can also lead to financial insecurity, as you may be at risk of losing your home or other assets if you are unable to keep up with your debt payments.
What can you do to avoid retirement debt?
There are a number of things you can do to avoid retirement debt. One of the most important is to start saving early and often. The more money you save, the less debt you will need to take on in retirement.
You should also try to pay off your debts as quickly as possible. This will free up more of your retirement income to cover your living expenses and save for the future.
Finally, you should make sure that you have a retirement plan in place. This plan should include a budget for your retirement expenses, as well as a plan for how you will cover those expenses.
Retirement debt is a serious problem that is affecting millions of Americans. However, there are a number of things you can do to avoid retirement debt and ensure that you have a secure and comfortable retirement.
What percentage of retirees are debt free?
According to a recent study by the Center for Retirement Research at Boston College, only 25% of retired Boomers are actually debt free. This means that the vast majority of retirees are carrying some form of debt into retirement.
What are the different types of retirement debt?
The most common types of retirement debt include:
- Mortgages
- Credit card debt
- Student loans
- Auto loans
- Personal loans
What are the risks of carrying debt into retirement?
Carrying debt into retirement can have a number of negative consequences, including:
- Difficulty covering living expenses
- Difficulty saving for the future
- Increased stress levels
- Financial insecurity
What can you do to avoid retirement debt?
There are a number of things you can do to avoid retirement debt, including:
- Start saving early and often
- Pay off your debts as quickly as possible
- Create a retirement plan
- Consider working part-time in retirement
Additional Resources
- Center for Retirement Research at Boston College: https://crr.bc.edu/
- SmartAsset: https://smartasset.com/retirement/bccrr-older-americans-more-debt-than-30-years-ago
Keywords: retirement debt, debt-free retirement, how to avoid retirement debt, risks of retirement debt, percentage of retirees with debt
Call to Action
If you are concerned about retirement debt, there are a number of resources available to help you. You can talk to a financial advisor, create a retirement plan, or start saving early and often. By taking steps to avoid retirement debt, you can ensure that you have a secure and comfortable retirement.
Put Your Debt in Perspective
Debt that creates opportunities can actually work for you. Better still if it’s tax favored and low cost as well. For example, you borrow money to purchase a potentially appreciating asset when you take out a mortgage or a home equity line of credit. On top of that, home loans may be tax-deductible. So they fall into the category of good debt.
However, there is no benefit to taking on large amounts of debt that are not tax deductible and are used to purchase assets that will probably lose value. “Bad debt” includes things like auto loans and credit card debt. One of the easiest ways to have debt work against you is to take on large monthly payments for a new car that loses value the moment you drive it off the lot.
If you are unable to achieve the ideal of being debt-free, your realistic objective should be to pay off any bad debt while maintaining the benefits of any good debt.
How Much Debt Can You Afford? The 28/36 Rule
- 28%%E2%80%94An industry rule of thumb proposes that no more than 22.8 percent of your pretax household income should be used to pay off your mortgage (principal, interest, taxes, and insurance).
- 36%, E2%80%94, or no more than 33.6 percent of your pretax income should be allocated to all debt, including credit card debt, auto loans, and debt from your house.
I believe you should become even more conservative going forward. These percentages might be doable while you’re employed, but for retirement, I advise significantly lower debt levels.
Safe Debt Guidelines 
Don’t try to tackle all your debt at once. You’ll likely just become frustrated and discouraged. Instead, prioritize.
If you have credit card debt, that’s your first priority. Sort your credit cards by interest rate and make a list of them along with their balances. Prioritize the debt with the highest interest rate first, and if you are able, raise the payment amount. Continue to make minimum payments on the remaining debts. Work your way down until everything is paid off. And as you pay off one debt after another, pat yourself on the back.
Putting all of your credit card debt on one low-interest card and making the highest monthly payment you can manage is another strategy for handling multiple credit card debts. But be very wary of loan consolidation offers. Some are genuine, but others have upfront charges and unstated expenses.
Modern Retirees: Debt Free or Debt Heavy??? | The Numbers
FAQ
Do most people retire debt free?
How much debt does the average retiree have?
How much money does the average 70 year old have?
What percent of retirees have a million dollars?
What percentage of retirees are debt free?
Three in 10 devote more than 40% of their monthly income to debt and a quarter have a mortgage with more than 20 years remaining on it. More than half say they intend to enter retirement debt free, but only one-quarter of retired Boomers actually are debt free. The Federal Reserve data suggests that these are the average debt levels by age:
Are retired Boomers debt free?
More than half say they intend to enter retirement debt free, but only one-quarter of retired Boomers actually are debt free. The Federal Reserve data suggests that these are the average debt levels by age: Houses, Education and Doctor Bills… Oh My!
Are You nearing retirement with debt?
A recent Nationwide study finds that Americans of retirement age have an average of $70,000 in debt. And that’s not the most comforting piece of data. So if you’re nearing retirement with debt, take these key steps to improve your situation.