Debt is a Risk to Retirement

Posted by: Sophie H. | Mar 12,2008


As if you needed a study to tell you this: a new study finds that debt is a major threat to people saving up for retirement.  52% of retirees admit to being in debt when they enter retirement.  Honestly, this seems low to me.  I would imagine that the majority of retirees are in some kind of debt.  The problem isn’t necessarily debt itself, but the size of debt.

Could you enter retirement with $2000 in low-interest credit card debt?  Sure, it’s not advisable to be in any sort of debt when you enter retirement, but that type of debt is certainly manageable.  The problem arises for retirees who have amassed a large amount of high-interest credit card debt.  Even a $2000 debt with high interest (in the high teens or twenties) will take years to pay off with minimum payments.  

I don’t want to suggest, however, that you can get by with debt in retirement.  Your main goal should be to get out from debt if at all possible.  This does not mean you should devote all of your resources towards debt.  If putting money in a 401(k) account or other type of investment means that your debt is going to last a little longer, this is fine.  But you must chip away at that debt – it’s just not necessarily wise to pay off debt while not saving or investing.  

This is one of the major reasons that studies like this come out. Retirees just have a lot on their plate: debt payment, investing, and saving.  It can be difficult to strike a balance.  Just remember, the worse your debt is, the more aggressive you’re going to have to be with it.  It would be a real mistake to become too reckless with investing as a way to pay off debt because that can seriously backfire.  

The sooner you get out of debt, the better.  The less debt you have, the more money can go into a high-yield savings account and responsible investments.  Take a lesson from this survey: debt is something that affect a majority of retirees and must be addressed.  

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