Debt & Retirement. The Two Just Don’t Mix Well.

to-all-the-people-who-claim-its-the-credit-card-companies-fault-that-theyre-in-debt-106336I think it is common knowledge, at least for most retirees, that it is better to retire with no debt or as little debt as possible. I always knew I did NOT want to retire with a mortgage. That’s why I always advised that you should buy a home by at least age 35, take out a 30 year mortgage and by the time you are 65 you should have a rent-free roof over your head! Granted yes, you could buy a home older, take out a 15 or 20 year mortgage, but you get the idea. I also vehemently advised NOT to ever take out an equity line of credit or refinance and suck the equity lifeblood out of your home. Why? Because that equity is your retirement lifeline. Heaven forbid, you couldn’t retire in your paid-off home at 65, for whatever reason, you would have at least built up a substantial passive retirement savings account. Probably enough money to sustain you for the rest of your lifetime. But hey! That’s just me.

Market Watch just released this article the past week (click here) about retirees and debt entitled: “This Is Something Retirees Should Be Worried About“. Here’s an excerpt:

Many Americans are bringing more than just their bucket lists with them into retirement. According to a recent analysis by MagnifyMoney of data from the University of Michigan Retirement Research Center (MRRC) Health and Retirement Study, more Americans are carrying burdensome debt into their 50s and beyond. Both the percentage of older Americans carrying debt and the amount of debt they’re carrying are on the rise. As recently as 1998, roughly 37% of Americans age 56 to 61 carried debt, with an average debt load of $3,634 in 2012 dollars, according to MRRC research. By comparison, today, 42% of Americans that age carry debt, and with an average debt load of $17, 623.

Although I have been an avid advocate of living a debt-free lifestyle (and I have since 1987) I have come to change my mind about debt in retirement. More specifically, my opinion on credit card debt has changed immensely. I no longer see debt as an albatross around my neck. I now see credit card debt, especially in retirement, as a tool. A tool to get me the things that I have missed out my whole entire life just because I wanted to live a debt free lifestyle. Now, at the end of my life, I am no longer patting myself on my back and congratulating myself for my lifelong sacrifices. I’m asking myself: do I want to die without experiencing all the things I had to give up for the last fifty or so years in order to remain solvent and debt free?

I’m not going to be on my deathbed telling myself I’m glad I paid all my bills on time. No, instead I’ll probably be on my deathbed lamenting and mumbling silently to myself: why didn’t I go to the Grand Canyon? Why didn’t I take that Alaskan Cruise? Why didn’t I buy that red Mustang convertible? Why did I eat day-old bread just so my kids could take piano lessons (of which they no longer play!)? Why did I ever go without anything I wanted so much for? Why? To save my money to do it in retirement? Are you aware that many people don’t live long enough to be retired? And when they do retire they are usually a bit sicker, weaker, dumber than they were before?

I’ve come to the realization, now at 66, that life is to be enjoyed. If for whatever reason, you just couldn’t afford the luxuries and experiences you craved, credit/debt if used correctly AND as a valuable tool, could have gotten you the life changing experiences you had longed for.  Within reason (and your income) of course.

If you were only making $50K a year, a safari trip to Africa for $17,000 might not have been appropriate. But if you and your spouse longed for a 4 day weekend in Cancun at around $1,500 or $2.000, you should have gone. It was an experience, I can guarantee, you would have appreciated and remembered all the rest of your life. Ditto for a car. If you’re still making $50K a year and you need a car, you could have borrowed to buy a recent model used car, like a Honda Civic or Kia…….NOT a BMW or a Mercedes. You get the idea. It’s still all within your realistic lifestyle but that little bump up would have made your life all the bit more tolerable.

I’m all for that. I’m NOT for constantly going out to eat, buying nonsensical clothes, taking worthless vacations, buying stupid junk, toys or a new smart phone every year. I’m for using credit/debt as a tool rather than a crutch and for educating yourself onto knowing the difference.

So, after almost thirty years of living an intolerable debt-free lifestyle (it’s NOT easy constantly saying no to yourself and going without) Nick and I have consciously made the decision to responsibly take on debt and finally get to do all of the things we have denied ourselves from over the last 3 decades. Despite buying ourselves the Florida dream vacation condo we have always wanted, and paying cash for it, we purchased ALL the furniture on credit. And why not? We have 5 years to pay it off at zero interest. The monthly bill comes to around $75 a month and our 2 bedroom, 2 bath condo is luxuriously furnished with beautiful furniture Nick and I had only dreamed about and lusted over in decorating magazines.

Nick and I still have a Bucket List of traveling ideas (click here) that realistically, we can’t afford. We’re NOT going to take any money out of our savings account just to travel. BUT we are going to borrow in order to make our dreams come true! We bought a smallish, very affordable RV, at a very low-interest rate and for $140 a month, we can travel and go where ever we want in America and Canada. What were we waiting for? Our goal is to see as many National Parks as possible. Overnight fees at national and state parks are about $22. We can afford all of this inside our passive retirement income. We’re staying within our means BUT we needed a bit of help from taking out an RV loan.

Lastly, our passive retirement budget, after taking in account the furniture payments and the RV payments, still won’t get us the little extras in retirement that we feel, at our age, entitled to. We want to go to plays and concerts and musicals and top-notch restaurants. We want to buy better quality food. We want little extravagances. I like a massage every now and then, Nick wants to rent sailboats. He just bought himself a brand new bicycle (his regular one was over 30 years old). We want to entertain more, have cocktail parties, do more with friends, see more with family.

I want the latest technological inventions with my computer, smart phone and photography hobby. The only way we can achieve this is by whipping out our credit cards (while earning airline points because we want to return to Italy one more time to see my family, before I die) or purchasing these items on zero-interest revolving accounts. I do have a limit however! I’m not that stupid. We can charge no more than $500 each card, which means we are carrying $1,000 worth of credit card debt. I can live with that.

I try to pay off the credit cards in full most months. We do sometimes get hit with interest but the rate is so low (like $7.22 a month) that I just shake it off and call it ‘the price of doing business’. In other words, it’s NOT a game changer. Carrying lots of credit card or loan debt at 22% and up is a game changer and something I would NEVER consider.

If you are retired or nearing retirement, I do not advise you to be in any sort of debt till you can refigure out your retirement lifestyle. Our retirement income can handle a bit of debt without jeopardizing us. If all else fails, we can always sell one of our paid-for houses and be done with it! But that’s not in the immediate forecast. We still have our retirement savings account intact and until we absolutely need that money, we’re not withdrawing from it any time soon.

If you’re approaching retirement, there’s still time to turn your debt picture around. Here are five steps to consider taking:

1. Pay down debt first. Prioritize paying off your high-interest credit card debt before further funding your retirement accounts, unless it’s a 401(k) contribution on which you’re getting a company match.

2. Stop (financially) supporting your adult children. According to a 2015 Pew Research Center poll, nearly two-thirds (61%) of American parents had provided financial support to an adult child in the prior 12 months. If your adult children need financial support, let them be the ones to take on debt. They have the rest of their working lives to earn income and pay it down. You do not.

3. Downsize. Your home, your car, your lifestyle. With age comes the opportunity to downsize and save. Take advantage when, and where, you can.

4. Delay retirement. Sure, this is not what you wanted to hear. A few more years in the workforce, however, can make a big difference. You’ll not only give yourself more time to pay off debt before retirement, you’ll also delay the age at which you may be able to begin taking Social Security benefits.

According to the Social Security Administration, workers who begin collecting benefits at 67 receive an average of $1,372 a month, compared with the $1,077 a month, on average, for those who start at 62.

5. Get help if you need it. Figuring out how to manage your finances as you approach, and eventually enter, retirement doesn’t have to be a do-it-yourself job. A financial adviser, elder law attorney, or credit counselor from the National Foundation for Credit Counseling, can provide good advice if you need it.

 

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