When you’re planning for retirement, we usually think about two types of expenses. Needs – the essentials, and wants – the nice-to-haves. But then there are other types of expenses that shouldn’t be wants or needs and those are what you want to be done with before retirement.
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Planning for retirement can be a daunting task, with many factors to consider such as saving enough money, investing wisely, and determining when to retire. One often overlooked aspect of retirement planning is paying off debt before you retire. This can have a significant impact on your financial well-being in retirement and should be a top priority for anyone approaching retirement age.
Paying off debt before you retire is important for several reasons. Firstly, carrying debt into retirement can eat into your retirement savings and limit your ability to enjoy a comfortable retirement. High interest rates on credit cards, personal loans, and other debt can quickly add up and make it difficult to make ends meet on a fixed income. By paying off this debt before you retire, you can free up more money for living expenses and leisure activities in retirement.
Additionally, having debt in retirement can increase your risk of financial insecurity. Unexpected expenses or emergencies can arise at any time, and having debt payments to make can make it harder to cover these costs. By paying off debt before you retire, you can build a financial cushion that can protect you from financial shocks and ensure that you have a stable financial foundation in retirement.
So, what debt should you focus on paying off before you retire? Here are some common types of debt that you should consider eliminating:
1. Credit card debt: Credit card debt often carries high interest rates, making it one of the most expensive forms of debt. Focus on paying off credit card balances in full each month to avoid paying costly interest charges.
2. Personal loans: Personal loans can be used for a variety of purposes, including debt consolidation, home improvements, or medical expenses. Pay off personal loans before you retire to reduce your overall debt burden.
3. Student loans: If you have student loans, consider paying them off before you retire. Student loan debt can be a significant financial burden and can limit your ability to save for retirement.
4. Mortgage: While it may not be possible to pay off your mortgage before you retire, consider making extra payments to reduce the balance and lower your monthly payments in retirement.
In conclusion, paying off debt before you retire is an important aspect of retirement planning that can have a significant impact on your financial well-being in retirement. By eliminating high-interest debt, you can free up more money for living expenses, reduce your risk of financial insecurity, and enjoy a more comfortable retirement. If you are approaching retirement age, consider prioritizing debt repayment as part of your overall retirement plan.
Student loan debt at retirement age is uncomprehendable actually .
I've come to realize as an investor that instead of letting my money sit idle in my savings account it is more productive to invest the little available and build a portfolio from the accumulated profit of investment
Glad you addressed not necessarily paying off the mortgage. I understand people who gain piece of mind by paying it off, and by all means I applaud them if they're able to do it. I have a mortgage in retirement and it doesn't bother me in the least. (I joke that if I'm lucky, I'll die before I have to buy the whole house.)
Found your post interesting to watch. I can't wait to see your new videos soon. Good Luck with the upcoming update. This YouTube channel is really very informative and effective.
I am not sure how to plan for it but house maintenance like a new roof or a water heater ac/heater or something else that could go wrong after retiring
I'll preface this by saying I am debt-adverse, but recognize its value as a tool (thus, mortgage). I considered paying off or paying down my mortgage before I retire, and decided that for me, under my circumstances, it made sense instead to invest in getting all systems on the house in tip-top shape while I still had the higher income and the ability to be flexible about my retirement date, if needed.
I needed a new boiler and a system upgrade, work done on decks and porches, including some age-in-place upgrades, driveway work, drainage system that takes into account the increased rains we've been having, new gutters. I'd recently had the house repainted. I have some block walls that need attention, some trees need to be cleared around the house. I've done several of these things and in the projected 18 months between now and retirement, I plan to finish the list.
Due to supply chain issues and labor uncertainty, the costs for this work, if I wait, are a roll of the dice. By doing this now, I turn it into a known quantity. Rather than paying off the mortgage earlier, I'm increasing the value and utility of the house, so it's kind of the same thing.
Pre-pandemic, I might have made a different choice, but we've dealt with a lot of uncertainty in the last few years, and at a fixed 3.5%, my mortgage will be about 20% of the low-end estimate of my retirement income (two legs of which include COLA adjustments, so this percentage will continue to decrease).
Also was proactive about seeing the dentist and having any old fillings, etc., replaced, rather than wait for it to gradually need replacement–again, turning an unknown future expense into a known quantity.
I also plan to invest in a new computer system–desktop with large screen and adaptive features like a good speaker system/tablet for traveling/phone/printer (since I won't have access to the perk of a work computer and printer anymore) and replacing my 20-year-old car with a newer used car.
Again, converting unknowns that might be difficult to absorb into a fixed-income budget into paid-up purchases, and still having the use of point-of-use-value cash to tackle operating expenses, heating fuel, etc., rather than using today's dollars to pay off tomorrow's mortgage. Also having a chunk of cash on hand in the event of a septic system replacement being needed will be more useful than having the mortgage paid off.
Given that my mortgage is equivalent to a modest estimate of inflation rates, unless I'm looking at this wrong, I'm not gaining much, if anything, by paying that off early.
My 20-year-old washer/dryer, range, oven, and refrigerator, on the other hand, are still working fine, so replacing these when they fail makes more sense to me, as these are items that are getting more energy efficient with time and generally go on sale pretty often.
I'm open to suggestions if I'm not seeing this clearly, and my plan is still evolving. But this is how I see things now.
I would rather have a mortgage and have access to the cash in case I need it.
Well you will probably need a new car after 6-10 years. Good Video!!
I paid my mortgage off 12 years early. It was 5.25% interest. I had been paying a little extra on it all along and had decided to step it up because I didn't have any other debt. I had made a 6 year plan to pay it off my grandmother passed away not long after leaving me enough to pay it off and still invest a bit. So I just went ahead and paid it off 12 years early.
I saved about $28k over the life of the loan. After the Trump tax changes went into effect it didn't make sense to itemize the interest anymore anyway. No tax advantages.
Now I'm automatically investing the amount I had been putting towards my mortgage. Maybe I missed out on some investment compounding, but I saved a bunch in mortgage interest and I have about 17 years left to invest before I hit retirement age. I rest easy knowing the bank can't take away the equity I had put into my house no matter what happens in the future.
You didn’t mention a car. Also rent increases, which can be exorbitant. Not everyone owns a home. What about planning for fire and natural disasters? Insurance doesn’t cover everything. And future medical expenses are a huge concern. How much should be put aside for future assisted living? It’s the unknowns that can ruin financial plans.
Maybe perform and payoff any needed medical procedure
Totally agree on getting rid of debt. Generally including the mortgage unless quite small, and very low rate.
On average people underestimate how much a house actually costs to maintain. The carrying costs are high with taxes, insurance, maintenance, and mortgage costs. And the value is overestimated since you can’t usually access it unless you downsize or take out a reverse mortgage. So decrease what you can(the mortgage), and then you won’t need to worry as much about the portfolio.
Go take nice trips and budget for it. Quit worrying about living to 95, you won’t.
Let me save you some time, collect SS at 70, begin RMD's from your IRA at 72. Be smart!
Can't imagine retiring with a mortgage.
Awesome! your potential seems timeless. Understanding your financial needs and chalking out a plan remains the smart way to prepare for the unexpected. 11yrs in investing space and extremely pleased with the decision I made. The good news is — it’s not too late…
This is interesting thanks for sharing awesome tips ! I'm financially free and currently growing a solid retirement plan. It takes a positive and consistency to learn new things, unlearn the old habits ms Important to get a mentor/coach to lead you all the way. It's great to start young too!
If your mortgage isn’t paid off, don’t retire fully.
Having a paid off mortgage and a large emergency fund outside of the market are priceless to me.
I enjoy your videos. Please consider doing a video on how much more percentage-wise (on average) a single person may need to save for retirement than a couple. Singles will have only one social security payment but still need to maintain a home and car, pay insurance, etc. I know everyone can do their own numbers and see what they need, but I’m curious about this question. Maybe use the example of people the same age who are currently social security eligible.
My team and I, not me and my team.
We got rid of a big house and built a small energy efficient place with beautiful views. This was the start of a duplex that will be done in about a year. We have another place out in the woods that I also built. Paid off a nice vehicle and a few toys. Retirement is great, I have been many places all over the world and I am always on vacation where I live.
We live in NJ and the cost of living is high and we have ridiculous taxes. Any help there? No mortgage or any outstanding debt. We are both 64 and I am a stay at home mom/gmom. Can’t move because our oldest has stage 4 breast cancer and needs us to help with childcare.
We did pay off all fixed asset liabilities in 2021 and replaced our vehicles by selling the exising ones and paying cash for the difference for new ones. We do have two years of expenses in cash but we own a business and a commercial property so we like to keep even more on the side.
I retired unprepared, because when covid hit the company offered a good package. I took it. Then my husband got I’ll and died. From the small life insurance I decided to pay the condo off. Thankfully I never had credit card debt. That really helped. Having debt is a killer. It can make your life miserable. Sometimes you may have short term debt, like a a/c breaks down or an appliance. Have a little money saved for emergency.
Car/Truck was not mentioned. A lot of people have a history of leasing cars going into retiirement vs owning. With the cost of vehicles today this is a major exptnse if you continue to lease. Many are accustomed to getting a new vehicle every three years if leased .. we have been retired for ten years and have been surprised we have been able tp manage with one car, If something comes up and we need another car we occassionaly rent. We are one of those that have no mortage – really simplifies the plan and I believe gives one more confidence there is no debt to manage. Will also help pay for surprises like unforseen medical expenses! I always find your videos verty informative.
I figured it would be wiser to carry a mortgage and get the tax write-off instead on taking a lump sum to pay the loan off. If I leave that money in my 401, it will grow to be much larger than my loan balance
Great video!
I will have a mtg for four years into my retirement. I see my investments making more money than my mtg costs. So I will not be paying it off early. My plan is to retire @ 55 after 30 years @ 3M but will work a little to supplement my non retirement funds until I reach 59 1/2.