Managing Debt in Retirement

Approximately three out of every four Americans carry some form of debt today. The challenge then becomes how to handle that debt wisely—even more so for retirees and near retirees. Debt is created when an individual chooses to buy now but can’t immediately pay cash for their entire purchase. The following basic spending strategies can help you control the amount of debt you create.


Post-Retirement Debt Control Strategies

  • Spend less than your retirement income. This saving tactic works well during the working years and will continue to benefit you in your retirement years.
  • Take control of how you spend money. Tracking what you actually spend using a pencil and paper, a spreadsheet program on a computer, or money management software can help you avoid potential debt traps.
  • Build an emergency fund equal to at least three months of living expenses. Using emergency funds for unexpected expenses or infrequent but anticipated expenses (such as repairing a damaged roof, replacing a broken dryer or buying new automobile tires) avoids the use of expensive debt.

The use of debt is becoming more common for people in retirement. If you find yourself in a situation in which you must go into debt, the following guidelines can help you sensibly manage your loan obligations.


  1. Know the costs of using credit. Read the fine print. Be aware when fees could be assessed and when higher finance charges can be applied.
  2. Lower the costs of using credit.
    1. Pay all your bills on time, every month.
    2. Be aware of universal default. If borrowers pay even one creditor late—a credit card, utility company or other—their credit costs could go up without notice.
    3. Never spend more than 30 percent of a credit limit from any one source.
  3. Know what you owe. Reduce your debt by being “SMART.” Set goals that are Specific, Measurable, Attainable, Realistic, and Time Bound.
  4. Methodically pay off your debt instead of selling an asset to eliminate it all at once.
  5. Begin to pay down or pay off a mortgage after paying off high-interest debt, such as auto loans, credit cards and payday loans.
  6. If your spending is under control but your overall debt is too burdensome when you begin retirement, consider downsizing your home, moving to a less-expensive area, or taking on a part-time job. Even small cut backs in expenses can add up to big savings over time.
  7. Do not hesitate to get help in addressing personal debt issues from a qualified financial planner.