Don’t Carry Debt Into Retirement

Jul 12, 2024

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Paying off debt is always a good thing…but paying it off before retirement is one of the best financial moves you’ll ever make.

It’s a disturbing trend: more people than ever are retiring with debt. That reduces their lifestyle choices and increases the likelihood they’ll have to return to work at some point. Today, we’ll talk about carrying debt into retirement and how you can avoid it.

Preparing for a Debt-Free Retirement: A Practical Guide

According to the Federal Reserve's 2022 Survey of Consumer Finances, 65% of people aged 65 to 74 are in debt, up from 50% 35 years ago. This rising debt can severely impact your lifestyle in retirement and might even force you to return to work.

Proverbs 22:7 warns, “The rich rule over the poor, and the borrower is the slave of the lender.”

A recent report by T. Rowe Price revealed that 20% of previously retired individuals are back to work, either full or part-time, and another 7% are actively seeking employment. The primary reason? The need for more income. Inflation has increased costs by about 15% over the past three years, stretching many retirement budgets thin, especially those burdened with debt.

Steps to Achieve a Debt-Free Retirement

Set a Goal to Eliminate Debt Before Retirement—If you're 5, 10, or 15 years away from retirement, aim to have all your debts paid off by then. Eliminating a mortgage, car payment, or other debts can allow you to live on less and create a critical financial margin in retirement.
Prepare for Economic Downturns—Debt restricts financial flexibility, especially during economic slowdowns and stock market declines. Since the economy moves in cycles, preparing for these downturns is essential.

Practical Strategies to Pay Off Debt

Cut Expenses—Review your budget and eliminate unnecessary expenses. Often, we continue paying for things out of habit. A thorough budget overhaul can free up funds to pay down debt.
Increase Your Income—Consider side work or other income-generating opportunities. Increasing your income, coupled with reducing expenses, can help you knock out debt faster.
Downsize Your Home—If feasible, downsizing to a smaller house can be a significant financial move. Selling a larger home can provide enough equity to pay off the mortgage and purchase a smaller home with cash or a much smaller mortgage. This also reduces expenses like property taxes and maintenance costs.
Accelerate Mortgage Payments—If downsizing isn’t an option, focus on speeding up your mortgage payments. Use any extra income or savings from reduced expenses to pay down the mortgage principal. Making just one extra payment a year can significantly reduce the loan term and interest paid over the life of the loan.
Tackle Credit Card Debt—Inflation increases credit card interest rates. To manage credit card debt, make more than the minimum payments. Use the “snowball method” by paying off the smallest balance first, then moving on to the next. This method is highly effective.
Avoid Using Home Equity to Pay Off Consumer Debt—Using home equity to pay off credit card debt converts unsecured debt to secured debt, risking your home if payments aren’t made. Additionally, it doesn’t address the spending habits that led to the debt.
Seek Professional Help—If you have more than $4,000 in credit card debt, consider contacting Christian Credit Counselors. They can help you create a debt management plan to pay off your debt 80% faster than going it alone.

The Benefits of a Debt-Free Retirement

At FaithFi, we’ve never heard from anyone who regretted paying off their consumer debt or mortgage. Planning to get out of debt before retirement dramatically improves your chances of staying retired. This provides financial peace and frees up more time and resources to give back to God’s Kingdom.

While the current financial landscape may be challenging, taking proactive steps now can ensure a more secure and fulfilling retirement. Start today, and you'll thank yourself in the years to come.

On Today’s Program, Rob Answers Listener Questions:

I recently retired and had a bad experience with an advisor who lost over $100,000 of my money in just a few months. What steps should I take to find an advisor I can trust? What questions should I ask them to ensure they fit me well?
Should I pay cash or finance a piece of property I want to buy for $330,000? It's four acres of land behind where I live, and my friend is selling it to me. I have a lot of money in treasuries and CDs, but I don't have any credit. What do you recommend? Should I pay cash for the land using my treasuries and CDs, or should I try to finance it even though I don't have good credit?
I'm receiving VA disability benefits, which are not taxable, but will my Social Security retirement be taxable? Will the VA benefits count as income, affecting how much my Social Security retirement is taxed?
Given her situation, I’m wondering how to protect my mother's assets, including her 401k and home. She is 67 years old and has been diagnosed with dementia. I'm concerned about how to ensure my mother has access to her 401k to help pay for care if she needs to go into a home, but I also want to protect her assets and the house for inheritance down the road. What options do we have to do this?

Resources Mentioned:

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