Reducing Debt Before Retirement
Debt decreases flexibility and increases risk in retirement. After all, any money that must go to
pay debt obligations can’t go to other retirement goals. That’s why most of the financial plans Helmstar develops with clients include the aim of paying off debt as retirement nears.
While your situation is likely unique, there are a few types of debt that you should eliminate
before you transition out of working life.
Credit cards and other unsecured debt. Normally at high interest rates, these debts put the magic of compounding interest to work — but not in your favor! [Eliminate ASAP]
Student loans. Whether for you or for the kids, lingering, often long-term, debts like this add financial and psychological stress if they’re hanging around in retirement. [Eliminate ASAP]
Car loans. One of the tricks of retirement planning is to prepare for a long life (lucky you!) while enjoying your retirement from day one. Key to this is being able to pay cash for depreciating assets like cars. As you near retirement, if you must finance it, perhaps it should wait. [Eliminate ASAP]
Mortgage. For many soon-to-be retirees, a mortgage may be one of the few tax shelters available. In this way, a mortgage can be “good debt.” But if you can pay a little more towards your principal each month, you may be able to free up significant cash flow for retirement. We encourage this, and most Helmstar clients have no mortgage debt at retirement. [Eliminate Soon]
“Compound interest is the 8th wonder of the world. He who understands it, earns it...
he who doesn’t... pays it.” — Albert Einstein