A DEBT- STRESS-FREE RETIREMENT Retiring debt-free may not be possible, but living stress-free is within reach BY TONY PALLONE
“Neither a borrower nor a lender be.” This oft-quoted line from Shakespeare’s Hamlet may have been good advice in the 16th century, but it’s not terribly realistic today. According to the National Council on Aging, older adults increasingly are retiring with debt and are carrying greater amounts of debt than ever before. Recent research published on real estate site Clever compounds this fact with the impact of the pandemic, noting that retirees more than doubled their debt in 2020. So, what to do? For starters, take the long view. “People look at retirement… like this drop-dead date. It’s this monumental time that is coming, and it’s looming,” says Conor Boyd, managing partner of Thoroughbred Advisors. Boyd sees clients put undue pressure on themselves about their retirement date, despite the fact that they won’t need access to all their assets on day one. Proper financial positioning, he says, can transform that stress into a manageable challenge to be solved gradually, which “allows you to enjoy your retirement along the way.” Here are some tips to make your retirement more stress-free. 1. Consider your overall financial picture. “You don’t want to give up your retirement for debt,” says Frank T. Guiffre, a certified financial planner with Halliday Financial. In other words, while it might be possible—and feel great—to liquidate your assets and achieve zero debt, leaving yourself with no money in the bank doesn’t exactly prepare you to retire. Likewise, says Boyd, it might make sense for recent retirees to defer taking a distribution from an IRA or 401(k) to pay off debt until the following year, when their taxable income might be significantly less. 2. Structure debt strategically. Both Boyd and Guiffre make a distinction between different types of debt. Credit cards, for instance, currently have interest rates averaging around 16 percent. Roughly speaking,
38
Summer 2021
that means that you’re paying a dollar for every six dollars that you borrow. By contrast, home equity loans and lines of credit have interest rates around a third of that amount. Using home equity to pay off credit card debt is a smart move to prioritize the elimination of “bad” debt—although Boyd acknowledges that this kind of repositioning can be challenging for clients, given the psychological investment many of us make in having our homes completely paid off. 3. Be careful with credit cards. While a high credit balance represents bad debt, Guiffre says, “That’s not to say that you can’t have credit cards in retirement. You have to have them responsibly.” That could mean taking a disciplined approach to paying off your balance each month, or perhaps every two months, or postponing new purchases until you pay off the previous ones. And it may be a good idea to switch from maintaining multiple cards to carrying just one. “Most people get 55PLUSLIVINGGUIDE.COM
