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Should You Have Debt When You Retire?

Presented By Jeff Sather

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Edited By Amy Rushforth

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Published May 1, 2025

Published Nov

1, 2025 / 2:15 am

PST 5 min read

About Jeff Sather

Unless some unusual arrangement was made at your birth, you likely entered the world debt-free.

In an ideal scenario, you would remain so, managing your finances wisely throughout your life. You would then transition into retirement unburdened by debt, with a robust 401(k), ample life insurance, and guaranteed income from annuities.

However, for many pre-retirees and retirees, reality paints a different picture. Life can be unpredictable, and even the most meticulously planned lives can encounter financial setbacks, leading to unexpected bills and debt.

According to financial research, over 41% of Boomer retirees carry credit card debt, and another 35% have car loans with balances exceeding $24,000. While the number is lower, many older retirees also carry debt into retirement.

How Can Debt Impact Retirement?

You might wonder, “Why is debt such a concern? I have retirement income to cover it. Is it really that problematic?”

Unfortunately, the answer is yes. Many retirees find that significant debt in retirement leads to a more stressful, financially precarious existence that can last for decades.

Worse, debt can be the critical factor that depletes retirement funds prematurely.

Substantial debt significantly restricts cash flow, making it difficult to maintain emergency savings, afford leisure activities and vacations, and cover out-of-pocket healthcare costs and preventative care.

While some believe market investments will offset the burden of debt, they often overlook that even strong market gains rarely outpace high credit card interest rates.

Furthermore, the impact of financial anxiety on health and emotional well-being is often underestimated. The stress of debt can contribute to various mental and physical health issues, potentially reducing life expectancy or necessitating long-term care.

How Much Debt is Acceptable?

Those nearing retirement often question how much debt they can carry without significant impact. Financial industry rules of thumb suggest no more than 28% of pre-tax household income should go toward mortgage principle, insurance, interest, and taxes, and no more than 36% toward consumer debt payments.

However, these guidelines apply while still earning a paycheck.

In my view, these percentages should be considerably lower in retirement. If you are approaching retirement with significant debt, you should explore other options.

Prioritize paying off high-interest debts first. Lower-interest mortgages with fixed rates and tax deductions can be a lower priority. If your mortgage rate is not ideal, consider refinancing to shorter terms or lower rates.

The Final Word:

Because individual financial situations vary, the amount of debt that impacts retirement differs for everyone. Generally, it is best to pay off as much debt as possible before retiring. If you are retired or nearing retirement, consult a qualified retirement specialist to develop the most effective debt reduction strategies for your situation.

Many people have learned about the power of the Safe Money approach to reducing volatility. Our Safe Money Guide, now in its 20th edition, is available for free.  

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