Quarter of Retirees Struggle with Debt Amid Rising Inflation


Retiring with debt is a harsh reality for over a quarter of retirees, as revealed by recent research from the Nationwide Retirement Institute. Mortgage and credit card debt are common burdens, exacerbated by inflation and financial pressures, according to Mike Morrone, Nationwide’s vice president of business development.

The study found that nearly a third of retirees expect to be less financially secure than their parents and grandparents. Alarmingly, 1 in 5 retirees are currently anxious about their ability to meet monthly bill payments. These financial strains can lead to rash decisions, such as rapidly draining retirement accounts, which can have serious long-term consequences.

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However, there are strategies to manage and reduce debt during retirement. One primary approach is to rein in spending. Borrowing among older households has increased, driven by mortgage debt alongside unsecured forms such as credit cards, student loans, and medical debt. According to Anqi Chen from the Center for Retirement Research at Boston College, “No one-size-fits-all solution exists.” Debt counseling and consolidation may help, but many retirees lacking sufficient resources struggle to meet basic needs.

Many retirees are making significant lifestyle adjustments to manage debt. Nearly 4 in 10 are spending less on entertainment, and more than a third are cutting back on trips and vacations. “Reining in lifestyle spending often means making tough decisions,” said Morrone. This shift can significantly affect retirees’ quality of life and emotional well-being.

Another strategy is to keep working. Delaying retirement by a year or two can facilitate creating a debt pay-off plan, providing more financial stability later on. This approach also allows for continued contributions to retirement savings and delays the need for withdrawals.

For those eligible, tapping into tax-deferred retirement accounts can be a viable option to eliminate high-interest credit card debt quickly, albeit with caution. Withdrawing funds from these accounts depletes retirement savings and the potential for future returns. However, if still earning an income from a job, retirees might be able to replenish their accounts to some extent.

Organizing and prioritizing debts is crucial. Financial adviser Paul Brahan from Fort Pitt Capital Group suggests starting with a comprehensive list of all debts, focusing on paying off the highest interest rate debts first. Automating payments and negotiating lower interest rates with credit card issuers are additional measures that can speed up debt repayment.

Applying for a 0% interest balance transfer card can also provide temporary relief. These cards allow the transfer of high-cost debt to a new card with a 0% promotional rate for up to 21 months, albeit with a transfer fee. Nonprofit credit counselors might negotiate rates for a fee, providing another potential avenue for relief.

Before retiring, individuals should analyze their spending to ensure that their savings will meet their cash flow needs. Carolyn McClanahan, a Certified Financial Planner, emphasizes the importance of understanding spending habits and adjusting them if necessary. High current interest rates offer good returns on cash, which impacts the decision on whether to pay off mortgages before retiring. McClanahan advises continuing payments on mortgages with interest rates of 3.5% or lower, but paying off those with rates above 4%.

In extreme cases, declaring bankruptcy might provide relief for retirees overwhelmed by debt. Federal law protects most retirement accounts and Social Security payments during bankruptcy. However, certain debts, such as unpaid federal income taxes or child support, might not be exempt. Consulting a bankruptcy attorney can clarify these complexities.

In summary, while retiring with debt presents considerable challenges, a combination of careful spending, continued income generation, strategic debt repayment, and, as a last resort, bankruptcy, can help retirees navigate financial insecurity and protect their future stability.