The theme this week on the Retirement Quick Tips Podcast is: Save More or Pay Off Debt Before Retirement?

So far this week, I’ve been talking about paying off your mortgage debt, but you may be asking yourself, what about other debts? Credit cards, medical bills, car loans, etc. 

So today, I’m talking about these other types of debt that you definitely don’t want to keep carrying into retirement. 

The biggest no-no for debt in retirement is any credit card or other high interest rate debt. Living on a fixed income and portfolio withdrawals that are generating returns in the mid-high single digits and using that money to pay off high interest rate credit cards simply doesn’t make financial sense and it’s a recipe for being chronically broke in retirement. 

Many people get into credit card debt because they don’t have emergency savings and they spend too much of their income, sometimes exceeding their income with their spending. 

If this is you, you’ll need to figure out a way to build up more cash savings in your coffers while simultaneously cutting your spending. 

I find that a good way to tackle spending habits prior to retirement is to live a mock retirement year. Figure out what your income sources will be in retirement and just live off of that income. The last thing you want to do is have to cut way back on your spending or go back to work after retirement, because you weren’t able to adjust to your retirement income. Or worse, you don’t want to continue racking up credit card debt in retirement or worse, spend down your assets quickly in retirement, because your spending is exceeding what your income and assets can support.  

Most retirees spend about 60-80% of their income that they were making pre-retirement, mostly because their assets and income sources aren’t quite as high as their income while they were working. And I find that there is an adjustment period in retirement for the first year or 2 while you figure out what your spending really looks like from month to month, so a mock retirement can really help with preparing you for that adjustment. 

To address the other types of debt like car loans, etc. I would still prefer my clients and all of you listening to have no debt in retirement because of the financial flexibility that comes with no debt, but there is a range here, so if you don’t have any credit card debt, no mortgage, but you still have a car loan, in most cases, that’s probably ok. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance