You may be surprised to learn that consumer debt is skyrocketing among retired Baby Boomers and those poised to retire soon. When it comes to mortgage debt, today’s retirees are more likely to have a larger outstanding principal, plus a home equity line of credit (HELOC), compared to those who retired 30 years ago.
The Total Debt Burden For People Over 70 Has Gone Up By 543%
According to an article published by CNBC.com, Baby Boomers poised to retire soon carry an average of more than $25,000 in non-mortgage debt. This includes credit cards, personal loans, and auto loans. Add to this, a growing number of retirees are carrying college loan debt into retirement. In fact, the Federal Reserve Bank of New York reports that the total debt burden for people over 70 has gone up by 543% during the 20-year period between 1999 and 2019.
“You may want to consider working longer to give yourself more time to pay down debt.”
How Much Of Your Retirement Income Should Go Towards Your Debt?
During your working years, the general rule of thumb is that no more than 36% of your pre-tax income should go towards paying off your home debt (principal, interest, taxes, and insurance) plus credit cards and auto loans. However, you have to take into consideration that out-of-pocket medical expenses and the cost of prescriptions will continue to rise as you get older. Add in the impact of inflation diminishing the buying power of your fixed retirement income and you’d be wise to lower your debt load while you’re still working.
Should You Take Out A TSP Loan To Pay Off Debt Before You Retire?
Depending on how much high-interest debt you’re in danger of carrying into retirement, you may want to consider taking out a Thrift Savings Plan (TSP) loan. First, do the math. As of April 2024, the TSP loan interest rate is 4.375%. Compare this to the interest rate on your credit cards, personal loans, and car loans to see if a TSP loan makes sense. Remember, when you retire, you’ll have 90 days to pay off the entire loan. If you’re unable to pay it off within this window, it’s considered a TSP distribution. Go to www.tsp.gov/tsp-loans/ for complete information.
With credit card interest rates outpacing historic stock market returns, eliminating as much consumer debt as possible before you retire is a top priority. You may want to consider working longer to give yourself more time to pay down debt. Connect with an FRC® trained advisor who can help you develop a personalized debt-reduction plan.
