Tuesday, December 21, 2010

Retiring with Debt

The Christmas season is probably NOT the best time to bring this up (or maybe, it's the perfect time!) but a surprising number of seniors are retiring notwithstanding the fact that they have not paid off their credit cards. In fact, according to this article in USA Today, some seniors are accumulating debt during retirement that they have no way or intention of paying.

I do find this shocking.

My general scenario (barring job loss or crippling health issues) is that one pays off the house, credit cards, etc. BEFORE retiring.

It's not like retirement is likely to bring in EXTRA income--that pie we spent our working lives accumulating is being sliced into ever-smaller pieces once we retire.

I will say that the part of the article I don't have a lot of sympathy with is the failure of retirees to leave an inheritance for their children. While I want to give my children something, and do expect to, it is NOT my children's right to expect that I will. My retirement funds are meant to fund MY retirement, not anyone else's.

Right now, working is important to me, both emotionally and financially. I could not fund my current lifestyle (meaning, my current debt payments!) on what I will have during retirement even counting Social Security and my 401(k). In fact, I've always wondered about folks who expect to rent throughout their retirement. Having my mortgage paid off (which it will be in 3.5 years) is a major factor in my ability to retire.

I wonder if this has to do with being a Baby Boomer? Do we just consider credit cards and credit card payments and mortgages part of life--that lasts until we die?

And beyond?

13 comments:

Beth said...

I agree fully with your stance on leaving inheritances to your children (and I'm 24!) The money my parents have worked so hard to save, is THEIR money. And, when they get to retirement (soon-ish), I hope they live long enough to enjoy every last penny of it! There's no way I'd live my life expecting to someday receive that windfall.

Anonymous said...

Leaving an inheritance for their children - HAH! I'm trying to stretch the money that my 89-year-old mother has to keep her out of Medicaid . . . and she goes behind my back and spends it. If we are lucky, the four of us kids can fight over the last nickel.

Grace. said...

So, Anon--ifyour mother is eligble for Medicaid (I assume she already gets Medicare?) why would you 'keep her off of it?' Though, clearly, if she is eligible for Medicaid, there's no estate to speak of.

Carol said...

Regarding your comment about retirees renting: although my house is paid off, it costs me about $700 a month in property taxes, homeowners insurance, and maintenance. This is for a relatively small house in the downtown area of a large city. Renting, I'd have none of these expenses, except (comparatively) inexpensive renters' insurance. And I expect my utility bills would be less if I were renting, also.

Sharon said...

I'll have to read that article. I know that my MIL did not accumulate credit card debt until she and my FIL were retired, and he became quite ill. She used the cc's for medications that weren't covered under her insurance. She had to do a reverse mortgage to pay her bills. She had her house paid in full, and it was her only asset.

I will not be able to retire with a house payment, although I'm planning on downsizing to a much smaller home in retirement. Even if our mortgage is paid off, there is still maintenance, taxes, and insurance. I don't have credit card debt now (thankfully) and I hope to not have car payments as well. It's hard for me to even think of retiring at this point, with college costs looming. I'm envious of you...only 3.5 years left on your mortgage? We switched to a 15 year mortgage, but I hope to have it paid off in 10.

Anonymous said...

Mom lives in an independent living apt. and has too much savings to qualify for Medicaid. I am trying to play the odds - her mother lived to 100. Mom needs help in the a.m. and p.m. ($90 a day. If she's been ill, we need someone there 24/7 until she recovers to manage for herself. Talk about some big checks!) Plus she pays her rent and refuses to move to assisted living where she would spend less each mo. And these are really nice places, not crummy holes in the wall. Medicaid facilities don't rank so high on my list, and she would have to go where there's an opening, which may not be so close in location to me. The last nine years have been a real learning experience for me! It's given me all my gray hair. Mom said she'd pay for my colorist to keep me a "dyed-haired blonde"!

Anonymous said...

I have two mortgages, but with low interest rates (4.375% and 5.75%) and do not intend to pay these off before retirement. Why? I'm investing the free cash flow so that when I retire in 2 years or so, my nestegg and retirement income will be about 2 times my current income, and making those payment will be easy. Invested money has higher returns then the loan interest.

Anonymous said...

Hey anon, with the 2 mortgages, is 2 years away from retiring and is thinking that the free cash flow they're investing instead is going to fund the retirement.......I've got a bridge to sell you in Brooklyn. Real cheap. You'll be a gazillionaire just from collecting the tolls.

Bucksome said...

My 77 year old stepfather wants to retire soon, but is still working until the house is paid off sometime next year.

Why my parents still had debt into their seventies is beyond me. (Now you know why I do into my 50s!)

Jerry said...

I guess one nice thing about retiring is having health insurance through medicare and you don't have to worry about that anymore. Although, I hear most have to buy supplemental. It does lead one to think about taking good care of oneself to not have to rely on doctors in retirement age.

Alexandria said...

@Carol - I suppose it depends where you live.

Our parents live in a VERY expensive area and have paid off homes. Their expenses run about $3k per year for insurance & property taxes. You can throw in a little more for maintenance.

A studio apartment would cost no less than $15k per year, and Grandma's room/board in a modest retirement community is $30k per year. IT's a 1-bedroom, but you can't turn around in the place. All they provide is room and board - no other services. I've often thought she would have been better off keeping her house (it was small) and hiring a chef and a maid.

Janette said...

A very expensive place- yet only 3K for Taxes and Insurance? We live in the rural midwest. Our taxes and insurance run at 7K for the year. The only thing I could think is she was in California and had her taxes frozen. In that case- leaving the house was a major mistake.

Once my husband is done with his "farming phase" we will sell this place and buy something very small near a city center where we can walk or take public transportation. We won't rent - because the rents can change too easily.

Grace- you are doing great! Hang in there. Debt free by retirement is definitely worth it!

Anonymous said...

I have the 2 mortgages on the 2 homes and didn't intend to pay them off before retirement...Over the past 20 years I have invested the free cash flow instead of paying off the mortgages, and have set aside $1.7MM in retirement and non retirement accounts....That will easily provide for payments in the future,....Retire early with low interest debt! And don't care if I get the $30M per year that ss may pay.