Planning for retirement is essential, no matter your age. Whether you’re just embarking on your career in your mid-20s or approaching the golden years with retirement just around the corner, ensuring financial security for the future is paramount. One crucial step towards a comfortable retirement is addressing and paying off significant debts before you hang up your hat.
To get a clearer picture of the critical debts to eliminate, we consulted financial experts nationwide. Here’s what they unanimously emphasized as the five debts you must pay off before retirement:
1. Credit Card Debt
It’s nearly unanimous among financial advisors: credit card debt needs to be tackled first. The consensus is clear: the burden of high-interest credit card debt can be a significant obstacle in retirement.
Kimberly Malesky, a Certified Financial Planner (CFP) and Certified Divorce Financial Analyst (CDFA) with Harmony Investment Management LLC, put it succinctly, “Carrying credit card debt into retirement is a recipe for financial strain. The high interest rates can be crippling once you’re on a fixed income. Taking the time to eliminate this debt now will pay off in spades later. Calculate your monthly payments and devise a plan to pay it off systematically.”
Echoing this sentiment, Khwan Hathai, a CFP and certified financial therapist at Epiphany Financial Therapy, emphasized, “High-interest credit card debt should be the primary target. The steep interest rates can cause debt to spiral if not addressed. Paying off this debt reduces interest payments and alleviates the mental burden of high-cost liabilities. The peace of mind from being free of credit card debt is invaluable, especially as you transition into retirement.”
2. Car Loans
Car loans are another significant financial burden that can hamper your retirement lifestyle. As Malesky pointed out, “Vehicle loan payments can take a sizable chunk out of your retirement budget. Consider whether you want a $500 monthly car loan payment eating into your funds meant for leisure and enjoyment in retirement. Understanding your priorities can help you make informed decisions about whether to pay off this debt.”
Hathai added, “Clearing auto loans before retirement reduces your monthly financial obligations and aligns with the reduced transportation needs you might have post-retirement. Owning your vehicle outright not only provides financial freedom but also gives you the option to sell the asset if necessary.”
3. Mortgage
The debate around paying off your mortgage before retirement is ongoing. While opinions vary, many experts lean towards the benefits of retiring mortgage-free.
Malesky remarked, “Most advisors recommend paying off your home mortgage before retirement if possible. This might not be feasible for everyone, but understanding your financial situation will help determine if you can manage mortgage payments along with other expenses comfortably. Paying off your home can be one of the most satisfying financial milestones.”
Hathai elaborated, “While a mortgage is often seen as ‘good debt’ due to tax benefits and its association with a valuable asset, being mortgage-free offers substantial advantages. It significantly lowers your monthly expenses and provides security, which is crucial when you’re on a fixed income. The psychological benefits of owning your home outright, such as peace of mind and a sense of accomplishment, are substantial.”
4. Personal Loans
Personal loans, often with higher interest rates and not tied to appreciating assets, should also be addressed. Hathai advised, “Settling personal loans and lines of credit is important as they can strain your finances in retirement. Reducing these debts clarifies your available resources, making financial planning easier.”
5. Medical or Healthcare Debts
Lastly, tackling medical or healthcare debts before retirement is crucial. Hathai emphasized, “With healthcare costs potentially rising as you age, entering retirement free of these debts can help you manage future expenses better. Paying off medical debts isn’t just a financial strategy; it’s also a psychological one, offering peace of mind.”
In conclusion, eliminating these five types of debts can pave the way for a more secure and stress-free retirement. As you plan for your future, consider taking proactive steps to pay off these financial obligations. Doing so will allow you to enjoy your retirement years with greater peace of mind and financial freedom.
