• Question
  • debt after retirement

    Asked on 1/2/2009

    I have an IRA with plenty of money to pay off my debt. I also have a mortgage. Should I use this money to pay off these loans. It would use about 10% of my IRA amount. I will be receiving Social Security in two months. Not paying off the loans would make retirement hard for several years.

  •  
  • Categories: Paying Off Debt, Retirement Planning, Retirement Assets and Savings, 401k, Social Security, IRAs

Answers

  • NewRetirement User

    Get a FREE phone consultation
    with an advisor. Learn more...
  • Well... the complicated answer to your question is that it depends on many macro economic trends. And with the US economy being in such flux right now, it is very hard to answer this question.

    For example: debt in a high inflation environment can be a good thing. Debt in a deflationary environment is bad -- only cash is good.

    However, in general, retiring with debt doesn't make a lot of sense. Most people in retirement are living off of a fixed income – meaning that you will not have more money tomorrow to pay off the debt than you do today. You will simply be paying more interest – wasting money every month you carry the debt. The average family between the ages of 55 and 64 who carry credit card debt spend 31 percent of their income on servicing the debt. In retirement, particularly, that is akin to throwing money out of the window.

    The basic premise of retirement planning is that you want to secure and guarantee enough monthly income for the rest of your life -- no matter how long you might live. You also want to plan for medical costs and long term care should you require it.

    You may want to learn more about retirement planning in our retirement planning 101 section:
    http://www.newretirement.com/Services/Retirement_Planning.aspx

    Or, use our Retirement Planning Calculator to learn if you have secured adequate monthly income:
    https://www.newretirement.com/Plan/Retirement_Planner.aspx

  • Login to rate this answer:   Answered on 1/6/2009
  • Get a FREE phone consultation
    with an advisor. Learn more...
  • I would use IRA funds to pay off debts other than the mortgage. I would find an interest-only equity credit line and replace the mortgage with it, having the additional equity available to me when and as needed. If this does not appeal for some reason, I would look at refinancing through an FHA/HECM reverse mortgage thgat could even have a monthly cash-out paym,ant built into it. You can set yourself up by planning ahead..

  • Login to rate this answer:   Answered on 1/9/2009
  • NewRetirement User

    Get a FREE phone consultation
    with an advisor. Learn more...
  • I would use IRA funds to pay off debts other than the mortgage. I would find an interest-only equity credit line and replace the mortgage with it, having the additional equity available to me when and as needed. If this does not appeal for some reason, I would look at refinancing through an FHA/HECM reverse mortgage thgat could even have a monthly cash-out paym,ant built into it. You can set yourself up by planning ahead..

  • Login to rate this answer:   Answered on 1/9/2009
  • NewRetirement User

    Get a FREE phone consultation
    with an advisor. Learn more...
  • It's tax season. Whoopie!

    And it is to your advantage for this reason. You will soon discover if your mortgage interest plus property taxes exceed your standard deduction. If not, that's another problem. If yes, you may want to keep paying on it until it is a wash tax wise.

    What is the interest rate on your loan? Are you a veteran? Can you do a refi? What will your income be from all sources after you collect Social Security? If your income will exceed a certain amount, you may end up paying taxes on the Social Security.

    I suspect you along with millions of others have lost money in your IRA. And, you may not live long enough to see any realistic recovery. This is another dilemma. Unless you have a Roth IRA, your withdrawals will be taxable at regular tax rates. This, too, is a factor.

    Would a Reverse Mortgage work for you? It would pay off your mortgage and allow you to have access to equity in your home. But, because age is a factor with a Reverse, the longer you can wait, the more money will be available to you.

    Because there are so many variables, there is no pat answer. Being that it is tax time, you now will be accessing your financials. Don't forget to add in what SS will provide for you.

    Weigh the pros and cons of different scenarios. You have to make these calculations. Taking advice from some idiot behind a computer that does not give a hoot about you, but will take your money willingly and often to recommend a plan, is not always a good choice.

    Get some input from different sources, and make your own plan.

  • Login to rate this answer:   Answered on 1/30/2009
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.