Ask Terry Questions Debt to Retirement – should I pay it off before retiring

Debt to Retirement – should I pay it off before retiring

By Terry Savage on January 25, 2020 | Financial Planning / Retirement

We did not plan our retirement very well. We are 64 & 61, we both plan on working 3 to 5 years respectively. We can’t save any money now as we have overwhelming credit card bills, my son’s student loans I took out, car payment, etc. We have about 65,000.00 in debt. We only have about $250,000.00 in retirement. Should we take some money out of the nest egg to pay of debt? Then save. I anticipate if we do this we could save about 24,000.00 a year easily. What is your advice. Thank you very much.

Terry Says

OK, this is the toughest question I ever get. So let me remind you that whatever you take out of your retirement fund will be added to your ordinary income and you will pay 30 percent (or more including state taxes) to wipe out the debt.
Now, here’s the BIG question: Do you have the discipline to save if you pay down this debt? Because if you do, you could be even in about 4-5 years –considering taxes.
And here’s he second big question: Can you discipline yourselves to each KEEP WORKING until age 70– which means you could still set aside money and then retire?
If you can honestly answer yes to BOTH questions, then you have my blessing to withdraw the $100,000 of debt — and stay out of debt. There’s a lot to be said for peace of mind!
Note to others reading this: I very rarely advocate this strategy, but this is an exception to the rule because these people ar4e past the penalty period, won’t have a lot more time for tax-deferred growth anyway, and we are likely near the top of a bull market, so selling out removes some risk. And I believe them when they say this will save in the future!

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