Retiring With Debt? Here's What You Need to Know.

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Retiring With Debt? Here's What You Need to Know.

We tend to think of debt as a younger person’s problem, but in reality, it impacts seniors to an unhealthy degree.

Debt among older Americans is rising fast. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data, Americans ages 60 to 69 had $1.99 trillion dollars in overall debt at the end of 2017, up from $1.33 trillion in 2007; and Americans age 70-plus had $957 billion in overall debt in 2017, up from $457 billion in 2007.

The problem, of course, is that when you carry debt into retirement, you not only lower your chances of ever paying it off, but also risk struggling financially when your debt payments monopolize too much of your limited income. If you’re about to embark on your golden years with unwanted debt, here are four things to consider to help you on your way to a debt-free retirement.

1. Refinance Your Mortgage

Ideally, you should pay off your mortgage before you retire. But paying off a mortgage may not be feasible or advisable, especially if it would mean taking a lot of money from a 401(k), IRA or other account.

Downsizing to eliminate or reduce mortgage debt could be a good start. While refinancing requires taking out a new loan, with substantial fees, recasting means keeping the same loan, but using a lump sum to pay down the balance and lower the payments. Recasting is offered by some but not all lenders and may not be good idea if the lump sum would come from retirement accounts. A Reverse mortgage allows people 62 and older to tap their home equity without having to pay the money back until they move out, sell the house or pass away.

2. Pay Your Costliest Debts First

Not all debt is created equal. If you’re approaching retirement with debt, your best bet is to focus on paying as much of it off as you can, but also doing so strategically. This means tackling your debts with the highest interest rates first, and then moving on to those that cost less to hang onto.

It’s also advised to note that if you’re paying off student loans, you may be eligible to deduct their associated interest on your tax returns, and you’re allowed to deduct mortgage interest as well. Unfortunately, credit card interest, by contrast, is not deductible in any shape or form.

3. Consider Selling Other Assets

If you’re lacking the actual cash needed to enter retirement debt-free, selling unwanted/unneeded assets might put some much-needed cash in your pocket, enabling you to keep up with your debt payments or pay down your obligations altogether.

Assets to think about include downsizing your home or selling expensive antiques/artwork/jewellery you no longer need. Or even consider taking up a part time job or renting out a room in your home to create some meaningful income. By doing so you’ll allow yourself to pay down a chunk of debt, thereby lowering your ensuing monthly payments and limiting the extent to which you continue racking up interest.

4. Hiring a Financial Advisor

Managing debt is a key component of how a financial advisor can help you plan for a healthy financial future. They’re experts at helping their clients get their finances in shape for today and the future. They may provide several services, such as investment management and income tax preparation.

Finally, as you approach retirement, a trusted financial advisor will also look at the options for restructuring debt into more beneficial options that you may not have thought of.

Final Thoughts

Retiring with debt is far from ideal, but for many seniors, it’s reality. So if you’re going to kick off your golden years with debt, be smart about managing it.

Finding the right financial advisor that fits your needs doesn’t have to be hard. If you’re looking for financial advice from a trusted retirement income planner, call the experts at CKS Summit Group. If you’re approaching retirement in debt, we understand the importance of a well-executed retirement plan to suit your financial needs.

Call us on 586-286-5820 or click here to set up your complimentary strategy session with us today.