6 Ways to Have a Debt-Free Retirement

Senior woman relaxing in retirement with music
Pressmaster / Shutterstock.com

This story originally appeared on NewRetirement.

If you are a typical American approaching retirement, chances are you’re carrying some form of debt.

In fact, the median debt per American household is $2,300, while the average debt stands at $5,700, according to a study by Lending Tree.

But retiring with debt can be detrimental to retirement planning, says credit counselor Thomas Nitzsche of ClearPoint Credit Counseling Solutions.

“High levels of debt can leave aging consumers unable to put money aside for other financial goals,” Nitzsche says. “Unfortunately, it is common for seniors to be retiring with debt.”

Most financial advisers suggest people pay down their debt to a manageable amount and have enough in savings for emergencies, maintenance costs and leisure expenses.

However, a debt-free retirement is ideal. When you retire, you are living off a fixed income — meaning you are not making any more money.

So spending your limited resources on debt (and interest on the debt) is like throwing your retirement money out the window.

Kansas City-based financial adviser Tracy St. John, with Financial Avenues LLC, and Steven Van Metre, who provides retirement planning through the Bakersfield, California, firm Steven Van Metre Financial, both say there are plenty of ways people can effectively manage their debt when planning for retirement.

Following are several strategies they suggest for a debt-free retirement.

1. Make lifestyle changes to avoid retiring with debt

Happy retiree
Robert Kneschke / Shutterstock.com

According to St. John, frequent restaurant trips or extended cable packages might make life a little more comfortable, but these are living expenses that can be cut back to help manage debt.

Instead of paying $20 here and there on unnecessary services or products, advisers suggest people put that money toward paying down their debt.

“Even if it’s $25 a paycheck, it’s something they weren’t doing before,” St. John says.

2. Budget properly for a debt-free retirement

Upset senior woman writing a check
CREATISTA / Shutterstock.com

Setting a strict budget and adhering to it can help. People should budget for current and future expenses, while also factoring in debt and expected retirement income.

They should plan to have no more than $5,000 in debt, or should make sure they can pay off their debt within the first three years of retirement.

“Most people spend more money in their first three years, and when you have debt on top of that, the reality is that most people won’t pay it off,” Van Metre says. “They should have a budget and stick with it so they can build into their budget their debt payments.”

Using a retirement calculator can help people determine what they will need to have saved or paid off before leaving the workforce.

3. Work longer or during retirement

A black senior man drives a forklift at work
sirtravelalot / Shutterstock.com

Both St. John and Van Metre suggest people work longer than planned, or pick up part-time jobs, during retirement to pay down debt.

“If you’ve got $10,000 on your credit card and it’s a matter of working six more months [to pay it down], it’s totally worth it,” Van Metre says. “If someone retires with that debt, they’ll inevitably take on another job.”

If you’re retiring with debt, St. John suggests looking into odd jobs, such as fixing meals for busy parents or babysitting.

4. Restructure your debt

Senior man being scammed on the phone with credit card
Andrey_Popov / Shutterstock.com

If possible, retirees should look into ways they can restructure or refinance their debt to find lower interest rates, Van Metre says.

For many, the quick solution to getting rid of debt often boils down to liquidating assets. But dipping into retirement savings will leave little money remaining for living expenses during retirement.

Instead, for example, they should look for credit cards that offer 0% interest for a period of time, or have lower interest rates than their current cards.

Ways you can restructure your debt include:

5. Seek financial advice early

Couple meeting with advisor.
wavebreakmedia / Shutterstock.com

Consulting a financial adviser, retirement planner or debt counselor in the years prior to retirement can increase the likelihood of successfully managing debt.

Ideally, people should seek advice 10 years before retiring. However, doing so five years prior would be realistic and would still allow time for financial planning.

The more time left before retiring, the better chance of achieving a debt-free retirement.

“Time gives people the opportunity to put things into perspective and gives us the opportunity to guide them and make their retirement a reality,” Van Metre says.

Search for a retirement financial adviser to start the planning process.

6. Avoid easy debt

Retirees playing cards
Diego Cervo / Shutterstock.com

Truly the best way to stay out of debt is to avoid it like the plague in the first place.

Debt can be so tempting. If you feel like you really want or need something, consider tips for avoiding easy debt.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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