What To Do If You’re Retiring with Debt
If you’re about to retire with debt, don’t fret. There are still many steps you can take to manage your debt and attain financial security during retirement.
Whether you have a high mortgage, student loans or large credit card balances, consider these actions to help reduce and eliminate your debt during retirement:
- Postpone retirement for a year or two. While you may be counting down the days to retirement, delaying it by just a short time with the goal of paying off debts can make a significant impact in your retirement finances. Keep in mind also that it’s usually much easier to stick with your current job for a bit longer than to find new employment.
- A smaller home that requires a smaller mortgage—or even none at all if paid with proceeds from your larger home sale—typically costs less to maintain. Reducing home expenses will help free critical funds for other costs that typically increase as you age.
- With interest rates still low, refinancing may be an ideal option. With a lump sum, you can cut the balance and lower your monthly payments. Just be sure your lump sum is not coming out of your retirement accounts as doing so may trigger higher taxes and lower your investment’s growth potential.
- Get a reverse mortgage. This option increases cash flow which is ideal for retirees typically on a fixed income. It is available to any homeowner who is 62 or older and has equity in his property. Payback is due only when the borrower sells, moves or dies. A disciplined saver can use the extra funds to manage other debt and stick to a realistic budget. As there are limitations and drawbacks though, professional advice from a trusted financial expert is highly recommended.
- Make a plan. Examine all your debt, income, investments and savings accounts. Remember to include the balances and loan interest rates. Create a budget with short and long term goals with a commitment to pay down your debt first. Make sure to pay loans with the highest interest rates and payments first. Dedicate a set amount from your retirement income each month towards debt payments. Consider automatic payments whenever available so you can ‘set it and forget it’. Doing so will save time and help avoid late payments and related fees.
- Consolidate debt into a zero-interest transfer rate credit card. If you have excellent credit, you should be able to qualify for such offers. This is an ideal option if you can pay off your debts within a few years. Otherwise, a personal loan with a set interest rate and fixed monthly payments may be more feasible.
With large mortgages, student loans, and significant credit card balances, many seniors are struggling financially and unprepared for retirement. When other options have been exhausted, it may be necessary to consider bankruptcy. However, before doing so, it is highly advisable to consult with a bankruptcy attorney to understand the benefits and consequences of taking such a step.
At Silverman Financial, we have financial expertise in retirement planning. We help our clients at all stages of their lives to manage their finances, address debt, and prepare for a secure retirement.
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