|by Rodney Brooks, USA TODAY|
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.
"We saw this huge refinance boom in 2000s," says
In fact, according to the
"Debt is a constant source of stress, and in particular chronic stress, for many people — especially those who are reaching retirement or in retirement," she says. "For too many Americans, retirement is where people are on budget and have to modify what they spend. When you go in with debt, whether it's debt you know about or is unplanned debt, it just causes a huge amount of stress."
The recession exacerbated the debt problem among retirees, says Robert Fragrasso, principal at
A closer look at the debt issues:
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?
The answer: It depends. The
But there are some clearly bad choices.
CREDIT CARD DEBT
According to the
"We would advise our clients to not carry credit card debt (into retirement) and pay the balances," says
In these days of low savings rates, retirees don't understand that paying off a 16% credit card balance is like earning 16%, says says Weiner. "They are better off paying the debt. Their costs go down."
And there's some evidence that people are starting to be better about credit card debt. "We have seen a down tick in credit card debt," says Dean. "But you also see increases in other debt, like auto loans. For a couple that is not saving enough, it can be a little bit scary. How are these folks going to be able to afford retirement."
"Multiple credit cards are not the ally of the financial planner or the client," says Smith.
STUDENT LOAN DEBT
Surprisingly, student loan debt is another problem for retirees, says Dean. "Many of the loans young people are taking out may be federal loans. If the students can't afford to pay, the parents are on the hook, saddling that older generation with paying for college.
"We've been going thorough this phase of college for all," she says. "Maybe it's the entitlement thinking. That's what's really lent itself to making this the fastest growing category."
Many retirees have home equity lines they took out to pay for their kids' education, says Smith. "With some loans they will be paying on their kids' college for the rest of their lives because they are paying interest only."
"We would hope that by the time someone reaches retirement age, they have already put a significant dent in whatever debt they have," says
SOME TIPS FROM FINANCIAL PLANNERS
1. Debt consolidation. "Roll over debt to 0% interest," says
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," says Stoops.
3. Figure out what happened to cause the debt issue, says Smith. "Was there an emergency, a health scare, a roof needing repair. Or is it a product of overspending. It's important to identify the root of the problem."
4. Also, retirees with multiple credit cards with balances should write all the information on a piece of paper. "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. Then the next."
5. Reduce your spending, says Dean, to help you pay off the debt in a timely manner, but also to save more and allow you nest egg to last longer. "Do the simple things," she says. "Look for deals, cut coupons and look for rebates. Be a little more frugal."
6. And finally, get a retirement plan in place, says Dean. "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. That is so key."