What You Need to Know About Managing Debt as You Near Retirement
by Gary Foreman
Baby Boomers Changing Insurance Needs
Should Retirees Consider a Life Settlement?
Slideshow: Reducing Expenses After Retirement
Retirement and Your 401k
Are you approaching retirement age and still in debt? Many in their 50s and 60s have spent years accumulating debt. Others have tried to reduce the amount they owe but haven't managed to repay everything they owe. The amount of debt you have going into retirement can have a critical effect on how financially comfortable your retirement is.
To help us understand what people in their 50s and 60s can do to control and repay debts, we spoke with Leslie Tayne. Ms. Tayne is an attorney specializing in debt issues and writes frequently on the subject. She's recently authored Life & Debt - a fresh approach to achieving financial wellness (www.lifeanddebtbook.com).
Q: Are there many people nearing retirement that are still in debt?
Ms. Tayne: Many people are nearing what is considered retirement age but are not retiring because of debt or the amount of expenses they currently still live with on a day-to-day basis.
Q: Why is it important to manage debt as you near retirement?
Ms. Tayne: It's super important because it is likely that once you retire, your income is going to go down from where it is now and then stay the same, meaning you likely won't have increasing income. It will be a fixed amount, and therefore eliminating as many expenses (especially debt payments) as possible will be a huge benefit and relief.
A New Strategy
Q: If someone struggled to get out of debt unsuccessfully for years, how can they change and be successful now?
Ms. Tayne: The best advice I can give is to change your ways financially by using a debit card or cash instead of credit, work on a budget, and just say no to unnecessary purchases. You need to look at the root of the problem in order to make a good financial change.
Q: Are all debts equally troublesome? Or are some more dangerous than others?
Ms. Tayne: Some debts are more problematic, especially the ones you can't pay! I say this because some you can pay comfortably and some you can't. When you can't pay a debt, most people seem to hope it'll work it out either by paying it for a long period of time or transferring it around with a lower interest loan or a balance transfer. However, this debt will most likely become a problem.
Debts or Retirement Plan First
Q: Should you use retirement savings (like 401k and IRA's) to pay off debts before retirement?
Ms. Tayne: I am not a fan of this and usually steer clients away from using hard-earned retirement money to pay off debts. It usually causes more issues than it resolves since you are depleting savings that you can't make up because of time left working and you could end up with a tax-related debt from taking it out early. Also, you don't solve the underlying issue of cash flow and now have left yourself with nothing to fall back in case of an emergency.
Q: Are there any tools or techniques that are available to reduce debt at this stage of life that aren't available otherwise?
Ms. Tayne: There are so many. Don't be afraid of a computer and programs to help budget. I also suggest you seek out professionals who specialize in managing debts, not just managing money and investments. Talk it out with family and significant others and be on the same page about financial habits and goals. Stop spending and look to reduce non-necessities. I am not preaching to cut your lifestyle in half, but to take a look at it and see what's most important for the next years or stage of your life.
Leslie Tayne, ESQ., is an award-winning and highly respected consumer and business debt-related attorney and advisor and founder of Tayne Law Group, P.C., one of the few in New York State concentrating solely in debt resolution and alternatives to filing bankruptcy for consumers, small business owners, and professionals. An expert blog contributor for Credit.com and author of best-selling personal finance book Life & Debt, Leslie has also penned articles that have been featured by noted news outlets such as FoxBusinessNews.com, Money magazine and Yahoo! Finance.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
Take the Next Step:
- Determine if debt could derail your retirement and what you can do about it now. Our checklist can help you. Afterall, one of the most important ingredients for a comfortable retirement is to be debt free when you retire.
- How do you know when it's time to start a new chapter in your life?
- What can you do when you won't make it on Social Security alone?
- Subscribe to After 50 Finances. You've learned how to work smarter, not harder. This weekly newsletter is dedicated to people just like you. Subscribers get a FREE copy of our After 50 Finances Pre-Retirement Checklist, a list of everything you need to do to be ready for retirement.
Share your thoughts about this article with the editor.
Debt is preventing me from saving as much for retirement as I should be! Tell us: Yes, debt is hindering my ability to save for retirement and I could use help dealing with it! or No, debt is not a problem but I'd love to discover more ways to save as I head into retirement!
Baby Boomer Tools & Resources
Trending in Baby Boomers
- 6 good reasons to put an annuity in your 401(k) or IRA
- 6 great reasons to use Social Security's website
- 6 ways to receive your payouts from an adjustable-rate reverse mortgage loan
- Pros and cons of saving for retirement through your state
- choosing the right retirement community for yourself or your parents
- What you need to know about Medicare coverage for inpatient stays
- Turning your home into a bed & breakfast
- This week's Readers' Tips