AARP Eye Center
It used to be more the rule than the exception: Older Americans would enter retirement debt free, with no home loans, no car loans, no credit card debt.
But that’s no longer the case. Today, people are increasingly retiring with all sorts of debt — mortgages, home equity lines of credit (HELOCs), credit cards, cars and even student loans.
AARP Membership — $12 for your first year when you sign up for Automatic Renewal
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP The Magazine.
Consider: Americans ages 60 to 69 had $1.99 trillion dollars in overall debt at the end of 2017, up from $1.33 trillion in 2007; and Americans age 70-plus had $957 billion in overall debt in 2017, up from $457 billion in 2007, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data.
Mortgages and HELOCs make up the bulk of that debt, but older Americans also are retiring with more student loan debt than ever before — much of it loans they took out to finance college and graduate school for children and grandchildren.
Debt isn't all bad. But before you retire with it, there are a few issues you should consider.
Good debt versus bad debt
Borrowing plays an essential role in financial planning, but it should be revisited before entering retirement, says Robert Westley, a certified public accountant and financial planner. According to Westley, “good” debt may be effectively used before retirement to build wealth over time. “Good debt is debt used to acquire assets that appreciate at a rate higher than the interest rate owed on the borrowed funds,” he says. An example is borrowing to buy a home.
Jeffrey Levine, the CEO and director of financial planning at BluePrint Wealth Alliance, also says certain debt is better than other debt. “We generally think of credit card debt as being ‘bad,’ and housing debt as ‘good,’ ” he says. “But the reality is more complex than that.”
Fixed debt, Levine says, is generally better than variable debt, because your worst-case situation is known. Lower-interest debt is generally better than higher-interest debt, and tax-deductible debt is generally better that nondeductible debt. For example: “Home-related debt tends to be lower interest than other debt,” he explains, “and it also tends to be tax deductible — which is why it’s often considered ‘good’ debt."
The debate over student loans
Westley says student loans generally fall into the good-debt category because “you are investing in human capital or the aptitude for increased lifetime earnings.”