Green Retirement

You should not retire in debt.  Why?  Financially, it is much better to retire your debt, than it is to retire in debt.  Retirement debt can dramatically reduce your retirement income.

Many Americans retire in debt, afraid of the impact getting rid of their debt, will have on their net worth.  Keeping your debt when you retire is a mistake that leaves you poorer.  Let me illustrate with an example:

Say you have a net worth of $600,000, debts (mortgage, cars, equity loans, credit cards) of $150,000, and the average interest rate you pay on your debts is 7%.  Your monthly retirement income from a net worth of $600,000 is $2,000 per month.  Paying off your debt when you retire, would reduce your net worth to $450,000, dropping your monthly retirement income to $1,500 per month.

So, it makes more sense to keep your higher net worth, enjoy a higher monthly retirement income and pay off your debt over time, right?  Wrong.  The monthly interest payments on a debt of $150,000, at a 7% annual rate of interest, is $875 per month.  Which means that your net monthly retirement income, after paying for your debt, is $1,125 per month.

Your monthly retirement income with a net worth of $600,000, and debt of $150,000, is $375 less than a debt-free net worth of $450,000.  In this example, if you payed off your debt when you retire, you would enjoy an extra $4,500 in extra annual retirement income.  Enough to pay for a couple of vacations a year.

Here are more articles on the Retirement Blog about Retirement Debt:

• Should I Retire With A Mortgage?
• Should I Rent or Own a House in Retirement?
• Get Out of Debt by Going Green

Visit the Green Retirement Website and learn how to retire early by saving the planet, try our free retirement calculators, and our free retirement planning.