Want a stress-free retirement? Don't have this one thing going into your golden years, according to one expert.
“The key thing that we tell our clients is that when you retire, so should your debt be retired,” Ken Moraif, senior advisor of Retirement Planners of America, recently told Yahoo Finance Live. “We really encourage people to be debt-free, no car loans, no credit cards, no home loans, and be completely debt-free.”
Not carrying any debt during retirement protects your assets and livelihood from economic uncertainty. If your retirement ends up coinciding with a recession, banks and lenders may not always extend goodwill and pause mortgage or other debt payments, Moraif said.
“Not having any debt — if bad things come — technically you can live on very, very little if you have to if you have no debt,” he said. “Because no matter how well you've done getting up to that if you take a big giant loss like a 2008 or a Y2K or others, that could impact your ability to retire or to stay retired.”
Last year, 46% of retirees carried some kind of non-mortgage debt — such as credit card debt, car loans, student loans, or medical debt, according to an annual survey of retirees from the Transamerica Center for Retirement Studies. Almost a third of those have between $1 and $10,000 in debt, while 14% percent owed $10,000 or more. The estimated median non-mortgage debt was $3,000.
Another tenet to retirement planning: retaining your home’s equity.
Nearly a quarter of retirees carry mortgage debt, according to the Transamerica survey, with the median amount at $42,000.
Moraif insists that having home equity can “enable a lot of strategic decisions” like deploying a home-backed loan for someone who is tight on cash or selling and “taking the difference in what they sold for and investing that to create income.”