A man with shirt gray hair leans against a desk while holding his cell phone and looks out a large, bright window.

Can Existing Debt Impact Planning for Retirement?


Knowing how to manage debt is an important step of the retirement planning process. Here's what to know about consolidating debt with Fifth Third Bank.

Planning for retirement is one of the biggest financial tasks that most Americans will undertake, and a new trend is making the planning more complicated. Senior households currently have a median $31,000 of debt, far more than the generations that preceded them. Reasons for this debt vary from medical expenses to housing costs to spending on credit cards.

Whatever the cause, debt can have a real impact on retirement plans—often leading people to reconsider when they retire and spurring them to ramp back their expenses when they do. However, the earlier you take action the more likely you’ll be able to lessen the effects of debt on your future and reduce what you owe altogether.

Reasons Why Senior Debt Grows

More than 60% of households ages 65+ carried debt in 2016, up from 42% in 1992. And the amount of debt that seniors carry has increased dramatically as well. Twenty years ago, seniors had about $12,000 in total debt and 30 years ago, the average debt was under $10,000. While a myriad of factors contributes to the debt burden of older Americans, a few key problems lead the way. First, the median income of households in their 50s to 60s has dropped below 2010 levels.

Meanwhile, medical debt is also a problem. Consider that 84% of people older than 65 have at least one chronic condition. In addition, medical expenses in the five years preceding older American’s death left one in four individuals in bankruptcy. And finally, seniors also face similar debt issues as their younger consumer counterparts, owing money on their mortgages and incurring credit card debt. In fact, more than a third of senior households report that they have both mortgage and credit card debt.

A Complicated Future in Retirement

Lingering debt can dramatically impact retirement plans—and at the very least, add stress to what should be a joyful period of life. Most commonly seniors with debt report that they delay their retirement, choosing instead to work past their original retirement age. The current average age of retirement is 71.

Others make tradeoffs. And in many cases, these choices lessen their retirement experience and may imperil their health or quality of life. For example, one-quarter of seniors report that they forgo home and car repairs in order to save money. Stretching medications by skipping doses is another common way to cut costs, though one that could put your health at risk. Missing meals to save money on food is another less than desirable tradeoff that seniors often make.

How to Deal with Pre-Retirement Debt

If you’re nearing retirement and have debt—the sooner you take action, the better. Consider the following tips for reducing your financial burden and getting your retirement planning back on track:

  • Take an inventory of what you owe. Review not just the amount owed, but also the interest rate you’re paying and the term of the loan. Then you can prioritize which debts to pay off first, and which may not be as pressing. Pay down high-interest credit card debt as quickly as possible. Refinancing into a lower-interest-rate credit card may provide a way to save money.
  • Consider refinancing your home. Investigate whether you can get a lower interest rate on your mortgage to reduce your monthly expenses. You may also be able to cash out some of your home equity in the process, allowing you to decrease your payments and put more money in the bank. If you're approaching retirement, then investigating whether you can refinance as soon as possible is important. That's because qualifying for a new mortgage can be harder on a fixed income. Refinance while you’re still working to increase your chances.
  • Negotiate your medical debt. Not only does medical debt often carry low or no interest rates, but hospitals may be able to lower the amount you owe altogether. Reach out to your health system billing department and ask about discounts for paying the bill in cash or if it’s possible to renegotiate the amount or term of the debt. Also, if the hospital is nonprofit, inquire about any charitable programs they have to help individuals pay down debts.
  • Increase your earnings. Boomers have reinvented retirement, including the notion that retiring from your current job means you’ll no longer earn money. If you’d like extra cash to help pay down your debt faster, consider a part-time job or flexible work that allows you to enjoy retirement but still bring in some income.
  • Work your debt into your retirement expenses. As you make your plans for retirement, be sure to include any debt payments into your budget. If you're planning on living on a fixed income, you'll want to account for paying down debt and then revisit your budget as you're able to free up cash.

Debt and retirement can exist simultaneously—and they increasingly do. However, look for ways to reduce your debt headed into retirement and manage it once you're there, and you'll prevent your debt expenses from overtaking your retirement dreams.

Share this Article