Like many of their generation, my parents despised debt. When they were able to pay off their mortgage, they did so, which they called “burning the note.”
Hard times have forced many into retirement with debt. It’s going to make their retirement difficult from a financial perspective. Social Security and pensions only cover so much. The debt issue has only gotten worse in recent years.
A recent survey found that the average retiree has about $19,200 in non-mortgage debt and increased their debt by $9,779 in 2020 — a 104% increase from 2019. Some 60% of retirees say they struggle to pay for basic necessities, including medical bills (47%), groceries (43%), and credit card bills (37%).”
Some debt comes with sudden unemployment or medical expenses. Discretionary spending can contribute to credit card bills. Fortunately, if you plan well before retirement, you can avoid many forms of debt. Here’s what you can do now:
- Contribute to a Health Savings Account. These vehicles can cover a broad array of health-related expenses not covered by your current plan. You can contribute $3,600 to a self-only program annually and $7,200 for a family plan. The contributions are tax-free. If the withdrawals are used for health expenses, they are also tax free.
- Avoid Credit Card Debt. This is the most costly debt and you can’t even deduct it from your federal tax return. Find a way to pay down your balance every month. Use debit cards.
- Create a Debt-Elimination Plan. You can prepay your mortgage principal every month to cut your balances and save thousands on interest. You can pay off installment loans. Try to pay with cash as much as possible.