Debt and Retirement

I was listening to a radio show over the weekend that takes callers and the host(s) try to answer their specific questions. One particular caller got me thinking about today’s post. This caller was an older woman, about 63, who had about $20k in consumer debt and still had about 100k on her mortgage. Her husband was disabled and received about $2k a month. She worked as a nurse and brought in about $65000 a year.

She expressed to the caller that not only did she want to pay off the consumer debt, but she really wanted to retire in about a year.

And this caller got me thinking. Even if she paid off the consumer debt in the next year (pretty doable probably with their income) she probably wouldn’t be close to paying off the mortgage. They never did discuss what she should do about her mortgage, but it got me thinking about millions of Americans who are in the same place.

According to a fairly recent survey, almost 44% of Americans will have a mortgage about the time they retire.  And that survey didn’t include other consumer debt as well. Considering that the average 401k balance is only about $160k at age 60, the average Social Security benefit is only about $1400 a month, and there are no other income streams many people approaching retirement might find it difficult to pay their mortgage, let alone pay the mortgage off.

Rent/Mortgages, along with health care and food, are probably the biggest expenses one will face in retirement. If one doesn’t have much of an income stream as they did before maintaining the lifestyle they had prior to retirement might be difficult.

So what does a person do if they are facing retirement and have debt, particularly mortgage debt?

Personally, I hope to have our mortgage paid off by 50 and if we decide to move up in house I hope to use the equity in our home to just buy another home outright.

First, pay off all of your consumer debt.

 Before anyone retires, whether it be early or at a more conventional age, I think most people would agree that you need to pay off all of your consumer debt that is beyond your mortgage. The more money that goes to your debts, the less you have to spend on other things.

Second, perhaps sell your home and move down in house.

Now I am making an assumption here about people and owning a home. If you do have a home and have a good bit of equity in it, but you still have a mortgage and want to retire you might consider selling your house, taking the equity and buying a house for cash. That way you have no mortgage debt and managing your expenses becomes a lot easier.

Third, move to a cheaper part of the country.

We have all heard stories about our parents or grandparents who have moved to warmer climates as they get older. It isn’t just the warmer climate that attracts people to Florida, Texas, and Arizona (among other places) but also the lower cost of living. Frankly, it is just cheaper to live in many parts of the South than say in the Northeast or the West Coast. Moving to a cheaper part of the country might take you away from family, but it will also make it easier for you to afford the kind of life you want in retirement.

Fourth, move to another country.

This is something I hope to talk about in future blog posts because I am fascinated by living and retiring in another country. Mrs. ROB and me have actively discussed spending a year or so abroad and potentially living abroad full-time. Of course, this depends on a lot of logistical factors including the amount of money needed, paying off student loans, our dogs, when can we visit family and friends, etc. However, there are places in the world that can provide a fantastic quality of life for under $2000 per month, which should be very affordable for many Americans on their Social Security alone. Places like Mexico, Panama, Costa Rica, Belize, Dominican Republic, Ecuador, Peru, Uruguay, Columbia, Spain, Portugal, parts of France, Thailand, and other parts of the world have wonderful opportunities for expats.

Of course, it isn’t as simple as that. There are barriers to living abroad like understanding the language, knowing where you are going, understanding local laws, being away from family, etc. But as the U.S. gets more expensive for people moving to another country might be a viable option, at least for a few years. It could be a great adventure for those who are daring.

Finally, work longer.

This might be bad to say, but if you have a bit of your mortgage left, but want to retire next year, you might consider delaying it by a year or two and just focus on paying off the mortgage. Of course, this sucks to work longer, but to ensure that you have enough cash flow then working a little longer to pay off the mortgage might be a the way to go.

One of the biggest fears that people have in retirement is running out of money. A mortgage payment puts a strain on one’s cash flow. Getting rid of the mortgage and all other consumer debt allows one to stretch your dollars farther and creates more cash flow for emergencies or other things you want to do.

As I get older I find that it is not necessarily savings that I worry about because I have saved enough that if I just left it grow for another 20 years we should be ok financially, but to do all of the things Mrs. ROB and me want to do in the interim, plus in retirement, cash flow is our biggest problem. Too much of budget goes to items that are fixed and don’t give us any specific pleasure.

I would surmise it is the same for many people approaching retirement. The best plan is to go into retirement, early or otherwise, totally debt free. It just makes the decisions you make in your life a lot easier.

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