Retirement and debt

Carrying debt in retirement is much more common now than it was a generation ago. A 2009 report indicated that, among people age 65 to 74, almost half had mortgages or other loans on their primary residences, over a third held credit card debt, a quarter had installment loans; in this age group, two-thirds held some form of debt.*

Let’s think about this. When younger adults carry debt, they have many earning years ahead of them in which to pay off the debt; they may even have reason to expect their income will increase, making debt payment easier. The opposite is true for retirees.

ISU Extension and Outreach is launching new retirement teaching materials this fall. As we finalized the materials, we had an interesting discussion about how to handle the subject of debt.

Key question: Should we encourage people to pay off all their debt before they retire?

Answer: It depends.

Of course it is nice to go into retirement without debt. But – what if people put all their extra money into paying off a mortgage early, but find the extra money to do that by skimping on their retirement savings? Or skipping it altogether? Given that mortgage is usually low-cost debt, and retirement investment has potential for many years of compounding growth, those people may not actually come out ahead in the long run.

The conclusion of our discussion? As we work toward retirement, it’s smart to be aware of our debts as a part of our whole financial picture. We’ll do best if we give attention to both aspects of retirement preparation: building our nest egg and also managing our debt.

At all ages, it important is to live within our means that is, to spend less than our income. It becomes particularly important as we reach retirement, since from that point on our income is unlikely to increase in real terms, even though our expenses may increase.

This may be the “bottom line” about carrying debt into retirement: it is not essential to go into retirement debt-free, but it may be essential to ensure our total debt is on a downward trajectory as we approach retirement.

Find our retirement materials at: You’ll also find credible personal finance information at Contact me through your local office of ISU Extension (Webster County: 515-576-2119) or directly (515-832-9597 or Subscribe to our blog at

*Bucks, B., A. Kennickell, T. Mach, and K. Moore. 2009. Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin 95: A1-A55.