Rosalind Evans
As retirement approaches, managing outstanding debt becomes a critical concern for many Americans. Despite efforts to reduce liabilities, the reality is that debt levels are rising once again, with the Federal Reserve Bank of New York reporting a $333 billion surge in household debt in late 2021. This increase is not limited to the younger demographic; older households are similarly affected, with those headed by individuals aged 55 and older seeing debt levels climb from 53.8% in 1992 to 68.4% in 2019. Understanding how to handle various types of debt during retirement is becoming increasingly important in this climate.
The diverse nature of debt poses different challenges and strategies, especially in retirement. Shweta Lawande, a certified financial planner, notes the growing trend of retirees grappling with various debt forms. Fixed-rate mortgages are deemed less problematic due to their stable nature and typically being accounted for in retirees’ budgets, as noted by Shelly-Ann Eweka, TIAA’s senior director of financial planning strategy. However, the burden of high-interest credit card debt can escalate expenses significantly during retirement.
Additionally, the rise in student loan debt among retirees is a growing concern. Lawande advises against accruing more education-related debt or diverting investment funds to support family members’ education costs, highlighting the impossibility of borrowing for retirement.
Craig Copeland of EBRI suggests a thorough review of finances and debt by age 55 to ensure a smooth transition out of the workforce. Prioritizing high-interest debt and making strategic decisions about Social Security benefits can lead to a more secure retirement.
Eweka emphasizes the importance of financial discipline, suggesting that managing expenses and living within a budget are foundational to financial success.
For those feeling unprepared or overwhelmed, seeking professional financial advice can be invaluable. Diahann Lassus of Peapack Private Wealth Management echoes that financial advisors can provide personalized strategies and use advanced planning tools to set individuals on the right path for retirement.
The path to a debt-free retirement requires careful planning, prioritization of debts, and a disciplined approach to budgeting. By seeking professional guidance and creating a robust financial plan, retirees can navigate the complexities of debt management and secure a more comfortable and stable financial future.
