Close this search box.
Blog » Retirement » Are Most People Debt-Free When They Retire?

Are Most People Debt-Free When They Retire?

Pay Off Debt or Invest for Retirement

I believe that it was Josh Billings, the pen name of 19th-century American humorist Henry Wheeler Shaw, who once proclaimed, “ Debt is like any other trap, easy enough to get into, but hard enough to get out of.”

Managing debt is a challenge many of us face. ‌According to the Federal Reserve Bank of New York’s quarterly report on household debt and credit, household debt totaled $15.58 trillion in the fourth quarter of 2021, an increase of $340 billion. That brings the total debt balance to $1.02 trillion more than it was at the end of 2020.

Still, getting out of debt is no easy task. It requires some sacrifice, discipline, and patience. What’s more, you may have to change your habits. And, along the way, there will be unexpected expenses that can derail your repayment plan.

However, getting out of debt should be a financial priority. For example, you’ll have more income. Take, for example, a $200,000 30-year mortgage ‌at‌ ‌4.5%‌ ‌interest. ‌Having to pay that mortgage every month will cost you $1,013 a‌ ‌month. Even worse? ‌The bulk of that will go toward interest rather than building equity.

Now, if you didn’t have that debt, you could use that money towards something else. You could build an emergency fund, splurge on a vacation, remodel your kitchen, or even retire early. And, as an added perk, your credit score will improve.

But, it’s just not the financial freedom. Being debt-free means less stress, better cognitive function, fewer illness, and improved relationships. All of which becomes more important in retirement.

Good Debt vs. Bad Debt

You could certainly argue that having no debt is a good thing. ‌‌‌However,‌ ‌many people‌ ‌cannot‌ ‌afford‌ ‌big-ticket items without borrowing money and taking‌ ‌on‌ ‌debt. ‌It must, however, be able to increase your net worth or make a significant impact on your life.

This type of debt is actually considered good. And, the most common examples would be:

  • Education. A person’s earnings potential increases if they have more education. ‌It is also no secret that education contributes to employment prospects.
  • Owning a‌ ‌business. The money you borrow to start your own business is also considered‌ ‌good‌ ‌debt. ‌Becoming your own boss can be both financially and psychologically rewarding, even if it isn’t easy.
  • The property you own. You can earn money from real estate in many ways. ‌Buying a house, living in it for a few decades, then selling it for a profit is the simplest method. Residential real estate also can be used to generate income by renting it out. ‌In addition, commercial real estate can provide cash flow and capital gains.

There is another end of the spectrum, however. This is where debt is taken carelessly and provided no value for the debt-taker. Examples would be depreciating assets like cars or clothing.

There are many types of debt, and not all of them can be easily classified. ‌Often, it depends on your financial situation. ‌Paying off high-interest credit cards with a debt consolidation loan from a bank or other reputable lender, for example. Because you’re not paying as much in interest, this is considered good debt.

Debt Before Retirement

Even if you have what’s considered good debt, experts strongly agree that this should be paid off before you retire.

“The key thing that we tell our clients is that when you retire, so should your debt be retired,” Ken Moraif, senior advisor of Retirement Planners of America, recently told Yahoo Finance Live. “We really encourage people to be debt-free.” That means no car loans, credit cards, or mortgages.

“Not having any debt — if bad things come — technically you can live on very, very little if you have to if you have no debt,” he said. “Because no matter how well you’ve done getting up to that if you take a big giant loss like a 2008 or Y2K or other, that could impact your ability to retire or to stay retired.”

“Managing cash flow is the cornerstone of a retirement plan because retirees typically live on a fixed income derived from their investment portfolios, Social Security, pension plans, and the like,” adds Robert Westley, a certified public accountant, and financial planner. “Routinely, retirement income is lower than preretirement income, and therefore debt repayments that were once manageable preretirement begin to consume a proportionately larger share of income.”

But, how many people are actually debt-free when they retire?

Debt Is Leading to Retirement Insecurity Among Seniors

Again, debt is something most people are accustomed to. ‌But retiring with debt is an entirely different‌ ‌story.

The challenge of living comfortably on a fixed income becomes even more difficult when you must pay recurring bills with interest. ‌However, according to a study by the personal finance site MagnifyMoney, 46% of all Americans are expecting to retire in debt.

And, this is especially true among seniors.

In a report published by the Congressional Research Service in 2019, the percentage of elderly households with‌ ‌any‌ ‌type‌ ‌of debt‌ ‌increased‌ ‌from‌ ‌38%‌ ‌in‌ ‌1989‌ ‌to‌ ‌61%‌ ‌in‌ ‌2016. ‌As of 2016, the amount owed had increased from about $7,500 to over‌ ‌$31,000‌.

Moreover, according to data from the Federal Reserve Bank of New York, the total debt burden for Americans over 70 has increased 543% since 1999, to $1.1 trillion. Likewise, debt among those in their 60s ballooned by 471% to $2.14 trillion, including mortgages and auto loans.

Other age groups also saw increases in their total liabilities during this period as well. But seniors significantly outpaced them in terms of percentage increase.

Average retirement debt by generation.

Consumer debt rose 5.4% to $15.31 trillion from 2020 to 2021, according to a study by Experian consumer debt. The jump is a hefty $772 billion. ‌And,‌ ‌it’s more than double the 2.7% increase over the previous two years.

Here’s a look at the average amount of debt each generation holds. FYI, includes credit card debt, student loans, personal debt,‌ ‌and‌ ‌auto‌ ‌loans. Mortgage debt is excluded from these totals.

  • Generation Z (18-24): $20,803
  • Millennials (25-40): $100,906
  • Generation X (41-56): $146,164
  • Baby boomers (57-75): $95,607
  • Silent generation (76+): $39,859

There is a bit of good news though. While the baby boomers are now entering retirement age, they are also decreasing their overall debt levels year over year, just like the silent generation. Moreover, these generations have less debt than in 2020.

On the flip side, the other generations have increased their average debt. This was particularly true with Gen Z who experienced an almost 30% jump. Experian‌ ‌explains that this is still the smallest average balance of any generation and a generation experiencing a series of firsts. ‌For example, buying a car, moving, and going to‌ ‌college. ‌This can complicate a previously simpler budget by adding new debt obligations.

If you’re curious, here’s the average consumer debt balance by type:

  • Mortgage: $220,380
  • HELOC: $39,556
  • Student loan: $39,487
  • Auto loan and lease: $20,987
  • Credit card: $5,221
  • Personal loan: $17,064
  • Total average balance: $96,371

Retiree Debut Doubled During the Pandemic

Many older Americans have been affected by the COVID-19 virus. ‌Retirement was forced for some due to unexpected medical issues, job loss, or caring for family members affected‌‌ ‌‌by‌‌ ‌‌the‌‌ ‌‌virus.

“Unplanned early retirement can leave retirees in a tough spot financially as they simultaneously lose out on time when they had planned to save for retirement and face a longer retirement in which they have to cover expenses,” writes Mary Beth Franklin. If you retired because of sickness, you may have additional medical expenses as well.

A survey done by Clever Real Estate asked 1,500 Americans if they were experiencing difficulties with their retirement or debt during the pandemic. ‌In the report, State of Retirement Finances 2021, government statistics, retirement statistics, and research from nonprofit organizations are compiled.

“Unfortunately, half of U.S. households can’t maintain their pre-retirement standard of living throughout retirement,” Francesca Ortegren, chief data scientist at Clever Real Estate, wrote in the new report. “Many Americans are forced to tighten budgets and give up luxuries during retirement.”

Overall,‌ ‌retirees‌ ‌took on an additional $9,979 in non-mortgage debt in 2020, more than doubling their debt to nearly $20,000. ‌According to the report, retiree debt was up by 104% from the previous year. ‌While working-age adults have more debt, non-retirees increased the amount of their debt only by 13% or about $5,000 during the pandemic.

Don’t Panic: Manage Your Debt

“Debt can negatively impact your ability to live off the sources of income you’ve established to pay your bills after you stop punching the clock,” explains Paul Humphrey, CFEd® for Kiplinger. “Debt payments subtract from the income of Social Security and savings in an IRA or other investment vehicles that you really need to be living your best life.” ‌Even‌ ‌a mortgage, which is most common among retired individuals,‌ ‌can‌ ‌impair‌ ‌your‌ ‌financial‌ ‌flexibility, he adds.

But, don’t stress over your finances just yet. Again, not all debt is bad. In fact, very few of us are debt-free when we retire.

However, you should get concerned when you cross the $50,000 “red line.”

“The proverbial red line here for retirement savings-endangering debt is $50,000 or more of either mortgage or non-mortgage debt,” says Humphrey. If you have debt around or over that threshold, then it’s time to worry. And, more importantly, find ways to manage your debt.

Develop a budget to track your expenses.

Having a budget helps you keep track of what you’re earning and spending. ‌When you are aware of your income and expenses, you can reduce unnecessary expenses or eliminate them.

The‌ ‌50/30/20‌ ‌budget is a simple budgeting method that doesn’t require detailed budget‌ ‌categories. ‌As a result, you spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings or debt repayment.

Stop accumulating debt.

You won’t pay off your debt using this strategy alone. But, you will keep yourself from getting into more debt. It’s a good idea to cut back on your credit cards. For example, freezing‌ ‌your‌ lines of ‌credit. Or, only using cash when shopping.

Pay off debts using the snowball method.

“The snowball method of debt payments involves paying off the smallest debts under your name entirely as soon as possible,” explains Kiara Tayor in a previous Due article. “Then, once those debts are done, move on to the next highest obligations, then the next highest, and so on until you are debt-free.”

In‌ ‌this way, you’ll save money on interest and rebuild your credit score all at the same time.

“Of course, if you decide not to pay off your debts ASAP, you may wish to invest in life insurance,” adds Kiara. ‌You might owe some of your debts to your surviving spouse, for example, if you die unexpectedly. ‌Your spouse, children, and other family members can be provided with enough cash to repay your debts with a comprehensive life insurance policy that comes with guarantees.

Have an emergency fund.

For “just-in-case” circumstances, emergency savings can be very ‌valuable. ‌If you are trying to save up for an emergency, you should save at least six months of your salary. If you lose your job, get injured and are unable to work, or when other unplanned but necessary expenses arise, you can use this money to cover your expenses.

Ask creditors for a lower interest rate.

You stay in debt longer if you have high-interest rates because so much of your payment goes toward interest. ‌You may be able to negotiate a lower interest rate with your credit card provider if you ask them to do so. ‌Good payment history is more likely to result in negotiating lower rates with creditors. However, creditor decisions are at their discretion.

You can also use tools like Trim or Truebill to negotiate your inflated bills. Also, these tools can track your expenses and cancel unwanted subscriptions as well.

Transfer balances.

Consider‌ ‌transferring your credit card balance to a credit card with a low introductory rate. ‌A new card with zero percent interest for a year may allow you to transfer some high-rate balances. ‌If‌ ‌so, figure out how you are going to pay off the balance during the interest-free period and make sure you don’t run up new fees.

Consolidate your debts at the best interest rate.

Consolidating your debts with a bank or credit union allows you to manage them more easily since you make only one payment to the bank or credit union instead of several payments to all of your existing‌ ‌lenders. ‌You may be able to get a better rate from a bank or credit union than the interest rates on the loans you have. As such, you should shop around before you consolidate.


You might consider refinancing your mortgage. Here you can take advantage of the lower mortgage interest rate than you are currently paying on other loans. ‌It’s possible that you would have to increase your mortgage amount. ‌The cash will come in handy if you pay off expensive debt like credit cards.

Ask for a payment plan.

Unless you have a plan to pay it off, don’t charge medical expenses to credit cards. You may be able to negotiate assistance plans with medical providers. ‌It’s best to avoid in-office financing offered by doctors, dentists, and other medical professionals, however. Often, this ‌can‌ ‌often‌ ‌be‌ ‌more‌ ‌expensive‌ ‌than‌ ‌a‌ ‌personal‌ ‌loan.

Earn more money.

By paying off your debt faster, you become debt-free faster. ‌Identify ways to generate extra funds for your debt payment. ‌It may be possible for you to earn extra money through home sales, a side hustle, or income derived from‌ ‌a‌ ‌hobby. Consider negotiating a raise or working more hours at your full-time job to earn more.

Retain your retirement savings.

Avoid cashing out retirement accounts. ‌A 10% penalty applies to withdrawals from 401(k)s and traditional IRAs if you are younger than 59.5 ‌A qualified plan may also subject you to more taxation

Speak to a credit counselor.

Finance and debt management organizations are usually nonprofits. ‌An affordable payment schedule is the goal of a debt management plan. ‌Credit counseling agencies divide your monthly payment among your creditors.

With the help of a credit counselor, you can create a personalized debt management plan. ‌The goal of credit counseling is to make the payment of your account in full without being in default.

Credit counselors can be found at‌ ‌the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Frequently Asked Questions

1. Should you be saving for retirement if you have debt?

Getting out of debt might seem like a‌ ‌top‌ ‌priority. ‌However, saving for retirement is a matter of time. It’s also impossible to get back the money you’ve lost.

Considering this, it’s a good idea to begin saving money now for your retirement. ‌It doesn’t matter how small your savings are.

The easiest way to start saving for retirement is to open a traditional or Roth IRA. ‌Additionally, you should take advantage of your employer’s 401(k) matching plan. ‌It’s basically‌ ‌free‌ ‌money. And‌ ‌who‌ ‌doesn’t‌ ‌need‌ ‌more‌ ‌of‌ ‌that?

Start paying off your credit card debt after you have saved for retirement. ‌By your golden years, you’ll be debt-free.

2. ‌What’s‌ ‌the‌ ‌best‌ ‌way‌ ‌to‌ ‌pay‌ ‌off‌ ‌debt?

Spending within your means, especially with a credit card, is one of the best ways to reduce debt. ‌Ideally,‌ ‌you would avoid racking up interest by paying your bills in full and on time each month.

Consider “snowballing” your payments if you have several accounts. ‌Taking care of smaller debts first will help you see results quickly and give you the motivation to keep going.

3. When should I consider debt consolidation?

If you don’t have any income left over after living expenses and debt payments, you may have to consider debt consolidation. Make sure you change your spending habits if you choose this option. A consolidation loan won’t help if you spend more than you earn.

In the past, a common way to simplify debt was to consolidate it. If you received eight different, it was easy to let one slip through the cracks. ‌With the internet, you can, however, set up automatic‌ ‌payments.

4. Are you ever done saving?

Simply put,‌ ‌no.

It’s important to keep your savings account in the black for expected expenses. These include home maintenance, taxes, or utility costs.

Also, you should save for acute emergencies like replacing your tires. ‌However, you should plan for them as they will happen eventually.

5. Is being debt-free worth it?

Paying off your debts enhances your financial well-being. ‌You’ll have more financial freedom and feel less stressed. And, it ensures that your retirement savings won’t run dry.

CEO at Due
John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.


Top Trending Posts

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More