The Deal with Debt and Retirement

Americans carry a heavy load of debt, a problem that only seems to increase as the baby boomer generation gets older. If you are considering retirement in the near future or have already taken the plunge and are still sitting on a worrying sum of debt, you need to do everything in your power to have those accounts settled as quickly as possible. While it is possible to have a happy retirement while paying off former debts, most financial experts agree that carrying debt after leaving the work force can be dangerous. If you’re looking for ways to overcome your debt and enjoy a stress-free retirement, read on.

Downsize Your Home

If you have kids, they’ve likely moved out of the house before you’ve retired, and it may be in your best interest to downsize. Moving into a smaller, more affordable house or even apartment will free you from high mortgage premiums and maintenance costs. This can be an emotional decision, but there are many hidden, practical benefits you might not have considered. If you plan on traveling after retiring, you’ll spend less time at home, meaning you’re paying for space you simply don’t need. Another issue to consider is maintenance. With a smaller place, you’ll likely have less maintenance issues and lower repair costs, which can save you a small fortune in the long run.

Refinance Your Mortgage

If you have enough equity in your home to refinance, you might be able to pull out enough cash to invest. If these investments prove to be lucrative, you can make your living off of this money instead of relying on a minimal fixed income. If you do choose to pursue this option, be aware that short-term interest rate deals can increase heftily later on. Fixed incomes don’t always meet the underwriting requirements, so it can be difficult to secure a better mortgage, but with the right lender and tax professional, you can determine the best route to make this a reality in your financial life.

Offer in Compromise

An offer in compromise may be the solution to your debt woes. If the government assumes you won’t be able to pay off your entire debt, they might be willing to settle for a lesser amount. While rare, if accepted, your debt could be much more manageable and put retirement that much closer. There are various stipulations involved with this program, including doubt as to collectability, liability, and administration issues. These can be tricky offers to finagle, so consider using the help of a professional from a site like who knows the ins and outs of the system and can secure you the best chance of success.

A Working Retirement

Seniors for the most part don’t have much income in retirement. This is mostly supplemented by social security, but limited fixed incomes can be hard to live on, and this issue will only be augmented by debt. You may find it helpful to hold a part-time job during retirement if you still have outstanding debts to pay. This will help you preserve your retirement savings while simultaneously eliminating what you owe.

Filing for Bankruptcy

While the B-word can be a scary option to consider, filing for bankruptcy might just work for those dealing with debt in the midst of retirement. Chapter 7 Bankruptcy liquidation doesn’t affect social security benefits, home equity, or 401(k) accounts. If you have an IRA, this is also protected for up to $1 million, which means bankruptcy might just be the right course of action. There are certain state exemptions, so it’s essential that you speak with a financial advisor before taking this drastic action.

If You Haven’t Yet Retired

If you’ve not yet taken the plunge, you may want to reconsider your timeline. If none of the above options work for your particular debt situation, postponing retirement might be in your best interest. The longer you work, the longer you can hold off on claiming social security and other benefits which could leave you in a much better financial situation just one or two years down the road.

It is possible to settle debt in retirement with the right course of action for your individual financial issues. Consider speaking with a professional to determine what route will work best for you.