For many people, retirement means living on a fixed income that comes from Social Security or a pension. Unfortunately, this is almost always significantly less than the income you made when you were working full-time. What happens if you have debts upon retirement?
While your income may be less, your debts may remain the same, which can lead to a few missed payments. If you didn’t pay off all your debt before retirement, you could be experiencing some financial stress with calls from debt collectors.
Your Social Security and pension cannot be garnished as a paycheck can. However, debt collectors may request a bank levy from the courts, which would allow them to take funds directly out of your bank account in order to repay the debt. A debt collector probably won’t go this route, depending on the size of the debt, because of the long and costly process. Should a creditor levy your bank account, however, it’s in your best interests to connect with a local attorney.
According to the Motley Fool, “We tend to think of debt as a younger person’s problem, but in reality, it impacts seniors to an unhealthy degree. An estimated 30% of seniors 65 and over still have a mortgage, and as of 2015, 2.8 million seniors aged 60 and older were on the hook for student debt.”
“The problem, of course, is that when you carry debt into retirement, you not only lower your chances of ever paying it off but also risk struggling financially when your debt payments monopolize too much of your limited income.”
So, if you’re about to retire and haven’t managed to pay off your various obligations, here are some tactics that will help you cope:
- Pay your costliest and least beneficial debts first. Credit cards carry the highest interest rate, and the interest is not tax deductible. Pay these cards off and then attack student loan debt or mortgage.
- Get a Job. If you’re entering retirement with debt and don’t want those monthly payments eating up too much of your income, getting a part-time gig to generate extra cash could be just the trick.
- Sell other assets. For example, if you own a larger home that’s not paid off, downsizing might serve the dual purpose of eliminating your mortgage and giving you a sum of cash to apply to other debts you might have.