Debt Could Derail Retirement Plans, A Consultant Says

Advisors need to help their older clients get out of debt, particularly credit card debt, which could derail their retirement plans if it is not eliminated, according to Christian Mills, head of finance, advisor relations and behavioral finance for Reverse Mortgage Funding, a company in Bloomfield, N.J.. that provides reverse home mortgages to seniors. The debt burden of those over 65 years of age has been increasing over recent decades and a growing number of pre-retirees expect to retire with some debt, Mills said, but there are methods that can be used to enter retirement debt free. “The importance of leveraging a financial advisor’s help before making any changes to a retirement plan or portfolio” cannot be overemphasized, Mills said in a statement. “Everyone’s situation is different, so pre-retirees will need a well-crafted strategy that accounts for their monthly retirement income, savings and expenses,” including paying off debt The total debt burden for Americans over age 70 increased by more than six times between 1999 and 2021, to $1.27 trillion, according to the Federal Reserve Bank of New York. In addition, 46% of all Americans now expect to retire with some debt, according to a 2021 survey by MagnifyMoney, and older Americans hold nearly half of total personal debt in the U.S. “Seniors in the U.S. are carrying more debt than ever before, and the trend is only worsening with the ongoing retirement crisis,” Mills said. “With approximately half of the United States at risk of not saving enough for retirement, senior indebtedness is becoming a significant threat to retirement for a growing number of Americans.” Advisors should help their clients pay off their highest-interest credit cards and raise their credit scores first, he said. “Ultimately, seniors are generally better off if they can pay off their credit card balances every month, especially when they are in retirement,” Mills said. This is even more important with rising interest rates. People carrying credit card debt should “consider switching to cards that offer 0% interest on balance transfers or no interest during an introductory period. This gives them more time to pay off a balance without accruing more interest.”