In today’s economy it can be tough enough to save for our retirement, let alone worry about resolving debts before we get there. However, carrying debt into retirement is likely to cause financial hardships within a few short years. Why? Most people live on fixed incomes in retirement, especially those who receive government assistance. The majority of Americans do not have enough retirement to live lavishly and, if they do, they rarely pay off debt and end up accumulating more.
Time Is Up
The idea of entering retirement with thousands in credit card debt, a car loan and a brand new 30 year mortgage should be outrageous! Unfortunately, this happens all too often.
Retirement is not a good place for debt of any kind, with the exception a small mortgage. Even mortgage debts should not be brand new in retirement unless a couple is downsizing to a more manageable residence. Medical costs, limited income and unexpected life expenses can all pop up and drain retirement accounts, leaving many with few options outside of bankruptcy.
Part of a retirement plan should specifically outline a plan for debt reduction. What good is a savings account if that money will end up in the hands of creditors? No one should carry thousands of dollars of unsecured debts into retirement. These debts need to become priority for repayment within the five years prior to retirement, if not sooner. Since everyone has a unique financial situation, taking the time to adequate evaluate a budget for retirement can provide a better idea of how much money will be available for expenses such as debt repayments.