4 Ways to Deal With Debt in Retirement

Dealing with debt is nerve-racking, but debt when you’re approaching retirement can be downright scary. The conventional wisdom is that you should try to retire debt-free, but fewer and fewer people are actually doing that.

In 1992, 53.6% of families with heads of household older than 55 held debt. In 2016, that number had jumped to 70%. Perhaps even more staggering than that, half of all families with heads of household over 75 years old held debt. So if you’re approaching retirement (or are retired) and you have debt, you’re far from alone.

Two unexpected factors that are contributing to the staggering number of people holding debt in retirement are: housing costs and student loans. People over the age of 60 hold $67 million worth of student loan debt and the average amount owed is $23,500.

The first thing you need to do is actually take a look at your your expenses.

Downsize your home

If housing is a financial burden, consider two options: downsizing or renting.

Buying a smaller home is advantageous because your mortgage costs are lower and your overall housing cost goes down.

If your children have moved out, there’s no reason to hold on to a large home purely for sentimental value, especially if it’s causing you undue financial stress. Consider moving to a smaller home. That will decrease your mortgage payments, or you could wind up without a mortgage at all.

If you don’t want to deal with the responsibilities that come with homeownership later in life, consider renting.

Run the numbers to see if it makes sense. In some places renting is more advantageous because there is a large stock of apartments or homes for rent, but in some locations that’s not possible. So it really depends on your preference and where you want to be.

Or, if neither option works for you, move in with your kids.

Think twice before co-signing for student loans

There is a growing trend of older people co-signing college loans for their college-age kids and grandkids. That means the debt is just as much your responsibility as it is your college-going relative.

Try to think twice about actually taking on the debt yourself.

If Junior lapses on paying those federal student loans, your Social Security income could be garnished, even if you weren't the one who took the classes. On top of that, if you get to a point of considering bankruptcy, student loans will not be forgiven.

Consider working longer

The “full retirement age” — or the age at which you receive full benefits from Social Security and Medicare — is between 65 and 67, depending on the year of your birth. But if you’re reaching that age and aren’t ready for a life of sitting on the front porch drinking sweet tea, consider extending your working years.

Really sit back and think about what you love to do, what are the passions that you have. The boomer generation may want to take a page from the millennial generation. Millennials think about themselves as a conglomerate of various skills. Take stock of your skills; don’t think of yourself just as a way that your job is described, but think about that job. Begin to break it down into the very skill sets, and think about where it’s applied.

An example: Say you work in logistics for FedEx, but you love to hike. Think about taking those logistical skills and applying them to a tour company. It's easy to get stuck in the rut of ‘this is the one job that I can do.

Break down the pieces of your skill set, analyze them and consider how else they can be applied. Make a list of your dream jobs and compare what they take to the skills you already have. Chances are you’re going to find a lot of overlap.

You can also make money off your assets — list your vacant room on Airbnb (or another hosting site), use your car to drive for Uber or Lyft. Be imaginative in finding uses for the things you already have.

Figure out where you are

As you approach retirement, take an inventory. What do you own? What do you owe? Once you do that, you’ll have a much better idea of how much longer you’ll need to work, how much smaller your house should be.

It might be a very scary step, but that very first step will actually lead to the next one, which is figuring out what your payment scheme will be going forward. So don’t stop, don’t hide, do a little homework and just put some pen to paper and figure out where you are.

The CFP® Professionals at Robert Gordon & Associates help clients assess their situation and make plans for moving forward and improving their financial situation every single day. It is smart to seek the skills of a professional when presented with a challenging topic. Call us TODAY to see how we can help you make a plan for financial success!