Too Many Retired Investors Still Have Mortgage and Credit Card Debt

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Many retirees who have spent years investing are still paying off their debt. It seems to be a result of abandoning traditional financial advice concerning retirement. Some of their biggest debt is on their mortgage and credit cards.

Having limited income in your retirement years, this kind of debt does not make much sense—unless you have a lot of money. Of course, if you had a lot of money, it would still be unwise to maintain this much debt because of the interest.

As of July 2024, HousingWire reported a survey revealed that 26 percent of retired investors still have mortgage and credit card debt. The survey also revealed that 22 percent of senior investors are questioning their ability to meet their monthly needs in the future.

About 40 percent of retired investors have already cut back some of their plans for travel and entertainment. Because of inflation, increased costs for monthly expenses have risen more than anticipated, which has resulted in fewer vacations and leisure.

Seniors Are Also Tapping Retirement Accounts Early

A retirement account, such as a 401(k) or individual retirement account (IRA), can be tapped once you reach 59-and-a-half. For most people, doing so at that age is almost guaranteed that you could run out of money early. More than one in five retirees are doing this, which may reveal they already have difficulty making ends meet.

Retirement Requires Some Spending Patterns Change

Retirement automatically comes with some changes. Many are predictable, and online calculators are available to help people understand what kind of income they can expect. Financial advisors will also help provide advice on the best time to retire—or not.

Part of the blame for so many seniors still being in debt after retiring could be the economy. No one could have predicted the high inflation rate during COVID-19 and after. Inflation still affects so much today, and prices are not apt to decrease anytime soon—if at all.

Another reason could be that seniors do not understand how much they will need after they retire. After retiring, the average person should have 70–90 percent of their current monthly income every month.

Pay Off the Debt Before Retiring

Before thinking of retiring, seek to pay off your major debt. When you do this, you will have more money to spend every month, because you are not still paying interest on your debt. Credit cards often have high interest rates, but paying them off first can enable you to put more money aside for vacations, travel, and medical bills.

Protect Your Assets

Since inflation and market uncertainty have generated considerable distrust in the ability to meet future bills, many seniors have created a strategy to bolster their retirement funds if there is a market downturn. About 1.5 more seniors are doing this compared to the previous year.

Continue Working

Almost one-fourth of all seniors over 65 are still in the workforce, and about 25 percent of them are self-employed. More people approaching retirement age intend to continue working until 70 and beyond. Many seniors do not consider how long they might live once they retire. Plan on living about 15 years after you turn 65.

Others realized too late that they did not have enough savings to retire. They have regrets that they did not put more into retirement accounts such as IRAs or 401(k)s.

Downsize

One way to deal with outstanding mortgage debt may be to downsize your home. It would depend on how much equity you have in your current home and where you would want to move. Some states have considerably lower home prices, and the cost of living is lower. A few states also do not have property taxes, and some do not tax retirement income.

Another option to remove your mortgage debt would be to get a reverse mortgage. These mortgages work the opposite way of a traditional mortgage. Instead of you paying them, the lender pays you so much each month, letting you and your spouse live there until the home is no longer needed. Forbes says that a home equity conversion mortgage (HECM) is the most common type, and they are insured by the federal department of Housing and Urban Development (HUD).

Credit Card Debt Could Be a Problem

Using a credit card often may indicate a problem, Chase says. The banking giant has notified its credit card customers that it will no longer let them add more debt to their cards using a “buy now, pay later” plan. The company will prevent cardholders from using their cards for these plans after Oct. 10.

Credit cards are notorious for their high interest rates, although not all of them. A zero-interest balance transfer card can reduce your debt faster if it gives you an introductory offer of a year or more zero-interest for debt transferred to the card.

Several credit card companies have recently raised their interest rates above 30 percent, compared to an average of 21.19 percent. Store cards such as Macy’s, Good Sam, Michael’s, Exxon Mobil, and Petco are now in this category. The higher rates are likely because consumers want new ways to meet their daily needs.

One good thing that is also happening is that more seniors than ever are now talking to their estate planners and financial advisors about how to do a successful wealth transfer to their beneficiaries. This is good, because the path to accomplish it is rapidly changing and expert advice is needed more than ever.

Reducing your debt as much as possible and eliminating it before retiring is the best way to retire. Retiring with debt and a limited income after you retire is not a good decision. Unexpected bills could easily destroy your future retirement plans. Talk to a financial advisor soon if you have mortgage or credit card debt and plan to retire soon.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.