5 Reasons You Should Pay Off All Debts Before Retirement If You Can

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Debt is becoming an increasingly common burden for older Americans.

According to a Lending Tree report, more than 97% of adults aged 66 to 71 carry non-mortgage debt. In addition, older residents in the nation’s largest cities have a median debt balance of  $11,349.

This financial strain is prompting many to delay retirement, draw down savings prematurely, and experience heightened stress. Here are five reasons you should pay off all debts before retirement if you can.

Debt Can Delay Retirement

Carrying debt can drastically postpone retirement and force many Americans to work far longer than they planned. 

A National Debt Relief survey found that 67% of non-retired respondents said they “definitely” don’t have enough saved to live comfortably in retirement and needed an average of 12 more years to reach their savings goals. 

“Our findings reveal a troubling reality: Our nation’s growing consumer debt epidemic has left millions of older Americans feeling stressed about their debt, which has considerable impacts on their ability to build a comfortable financial future and their ability to retire,” said Natalia Brown, the organization’s chief compliance and consumer affairs officer.

Debt Erodes Financial Security

For many older adults, carrying debt makes it difficult to save enough for a stable retirement. 

Nearly half (49%) of respondents in the National Debt Relief survey reported having less than $20,000 saved, and 22% had saved nothing at all.

“Carrying debt into retirement can quietly eat away at everything you’ve built,” said Bert Hofhuis, entrepreneur and founder of Banking Times. “You’ve likely spent decades saving, budgeting and investing, only to see loan repayments or credit cards continue pulling money from your pocket when you’re no longer earning a steady income.

“When you’re debt-free, your pension or drawdown can go directly toward your needs, experiences or even helping family, rather than servicing interest. I’ve seen people sleep better just knowing no one’s waiting at the end of the month to be paid back.”

Debt Drains Your Retirement Portfolio

Debt doesn’t pause when the markets dip. Retirees who carry debt may need to withdraw more aggressively from their pension or retirement accounts to meet monthly obligations.

“That puts pressure on your portfolio and can shorten how long it lasts,” Hofhuis said. “In some cases, people trigger large taxable withdrawals to make lump-sum repayments, and that throws off their income plan.

“Debt repayments don’t adjust based on how the markets perform, so if there’s a dip in your investments, you’re still expected to meet the same monthly commitments. It can trap you in a corner, where you’re forced to make poor financial decisions just to keep up.”

Debt Undermines Retirement Confidence

Retirement often brings a psychological shift in spending that can be worsened by debt.

Mark Zagurski, director, strategy and communications at Mutual of Omaha Advisors, said that while some studies suggest retirees spend more at the beginning and end of retirement, debt affects their mindset.

“Many retirees become more price-conscious when they stop earning an income and start relying on savings,” Zagurski said. “This can lead to cautious spending, and in some cases, underspending, even when it’s not necessary.

“Carrying debt into retirement can make your finances feel tight at a time when you want to relax and enjoy life. High-interest debt can grow quickly, making it tough to keep up with payments. That could mean cutting back on things you enjoy or even selling assets to stay afloat.”

Debt Limits Your Flexibility

Carrying debt into retirement reduces one’s ability to adapt when life throws a curveball. 

“Retirement isn’t as fixed as people imagine,” Hofhuis said. “Expenses pop up, whether it’s healthcare, home repairs or helping grandchildren. If you’re locked into repayments, there’s less room to adapt.”

Debt also adds emotional strain that often goes unspoken. 

“I’ve worked with retirees who felt ashamed about their balances and kept it hidden from family,” Hofhuis said. “It affected their well-being, not just their finances. If something unexpected happens, like a medical cost or a family emergency, and your money’s tied up in loan repayments, you don’t have many good options.”

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