Debt, whether it's credit card debt, student debt or
mortgage debt, is emerging as a serious threat to a successful retirement for
thousands of Americans. According to the
Consumer Financial Protection Bureau, the percentage of homeowners age 65 and
older carrying mortgage debt increased from 22% in 2001 to 30% in 2011. Among
those age 75 and older, the rate more than doubled, from 8.4% to 21.2%.
A closer look at the
debt issues:
MORTGAGE DEBT
It's one of the big questions going into retirement. Should
I pay off my mortgage, even if I have to dip into my retirement funds? It
depends. The CFPB says the median mortgage debt for seniors increased 82% from
2001 to 2011, from $43,300 to $79,000. But the answer is more complicated and
depends on your tax bracket and the size of your mortgage payment. Not all of
the decision is rational. But there are some clearly bad choices.
CREDIT CARD DEBT
According to the National Center for Policy Analysis, older
Americans are also accumulating more credit card debt. The group says the
average credit card balance for Americans 65 to 74 was $6,000 in 2010, up from
$2,100 in 1989. For those 75 and older, the average balance went from virtually
nothing in 1989 to $4,600 in the same period. In these days of low savings
rates, retirees don't understand that paying off a 16% credit card balance is
like earning 16%. There's some evidence that people are starting to be better
about credit card debt.
STUDENT LOAN DEBT
Surprisingly, student loan debt is another problem for
retirees. Many retirees have home-equity lines they took out to pay for their
kids' education.
SOME TIPS FROM
FINANCIAL PLANNERS
1. Debt consolidation. Roll over debt to 0%
interest. If you have good credit, you can sometimes get a zero-interest loan
for 12 to 18 months on credit card balance transfers. Also, some people have
refinanced into a 15-year mortgage instead of 30-year in anticipation of having
the home paid off by the time they retire.
2. Understand your retirement numbers. Some people
want to get out of debt using their retirement savings, which may not be a good
idea. They end up selling an asset that should be earmarked for retirement.
Understand you own personal retirement goals and what it is going to take.
Truly calculate what those numbers are and what they would need to have in retirement
before they blindly pay off debt.
3. Figure out what happened to cause the debt issue.
It's important to identify the root of the problem.
4. Retirees with multiple credit cards with balances
should write all the information down. Create some sort of chart, naming
the credit card, the balances, the rates and all the minimum payments. Tackle
the highest interest rate first. Then apply everything to the next and so on.
5. Reduce your spending to help you pay off debt in a
timely manner, but also to save more and allow your nest egg to last longer.
6. Get a retirement plan in place. If you don't have a
plan in place, how will you come back and see if I'm on track or did I go
overboard on expenses?
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