5 Smart Steps to a Debt-Free Retirement

5 Smart Steps to a Debt-Free Retirement

John Russo

September 6, 2017

5 Smart Steps to a Debt-Free Retirement

What are your retirement plans? You might dream of spending more time with family, relaxing, taking up new hobbies, or going on the vacation of a lifetime. But if your retirement is approaching and you’re still struggling with debt, those dreams could be harder to achieve.

Retirement is expensive, but being in debt could make it feel downright impossible. The good news is that you can still plan for the retirement you’ve always wanted—even if you’re struggling with debt today. Here’s how you could plan for a debt-free retirement.

1. Create a retirement budget

If you want to know how much you need to retire, creating a retirement budget is a good place to start. There are several online budgeting tools that could help you figure out how much you’ll need to save for the perfect retirement, but you could just as easily make a budget the old- fashioned way.

To calculate your retirement budget, make a list of the expenses you have each month. These could include:

  • Mortgages, property taxes, homeowner’s insurance, and utilities

  • Food, clothing, rent, and personal expenses

  • Health care, insurance, and ongoing medical expenses

  • Alimony and childcare costs

  • Credit card debt, loan payments, and student loan debt

  • Money you plan to spend on vacations, hobbies, entertainment, and any other miscellaneous expenses

Add all of these expenses up, and you’ll have a monthly retirement budget. An average American retiree spends about $3,808 per month, totaling approximately $45,700 per year.

If this number seems overwhelming, it might ease your mind to know that retirees received an average of $1,366 in Social Security benefits in April 2017—offsetting the amount they needed to save. Nevertheless, saving as much as you can before you retire is crucial.

2. Track your savings

Once you know how much you’ll need for retirement, you can check whether your retirement savings will fit your budget. If you’ve invested in a 401(k), IRA, or another type of retirement asset, it’s important to keep track of how much you’ve saved.

If it turns out that you need to save more before retiring, you may need come up with a plan to accelerate your savings before you retire. This could mean cutting out your more discretionary spending, like eating out, extravagant vacations, gym memberships, and subscriptions. It could also mean looking for ways to make and save extra income.

3. Eliminate your high-interest debt

It’s shocking to think of how many people retire with debt. The average credit card debt of people over 65 is a whopping $6,351. Imagine having to pay that much debt off on a fixed income. Worse yet, credit card debt may actually push back your date of retirement if you want to save a certain amount before leaving the workforce. But working for longer could be a better option than struggling with high-interest debt when you’re retired.

Additionally, making payments on high-interest debt can seriously eat away at your ability to save for retirement. So, if you have debt from credit cards or loans, paying it off as quickly as possible could make saving for your debt-free retirement much easier.

4. Protect your retirement funds

You might be considering using your retirement funds to pay off your debt before you retire. That’s usually a huge mistake for two reasons. First, you may have to pay taxes for any money that you pull out of your 401(k) or IRA before retiring. And second, any money you pull out is money you’ll have to pay back in before you retire. So, taking money out of your retirement to pay debt is a short-term solution that could hurt your long-term financial wellbeing.

5. Build up your emergency fund

One common mistake retirees make is not having enough money saved to cover an emergency. Between medical bills, unexpected emergencies, and other expenses, retirement isn’t cheap. That’s why building up an emergency fund is crucial before you retire.

Since the amount of money you have available after you retire is limited, it’s important to have as many additional funds at your disposal as possible. Without them, it’s too easy to end up in debt all over again because it’s so tempting to use credit cards or loans when an emergency happens. The more you can save in an emergency fund before you retire, the better—even if you think you already have enough saved for the debt-free retirement of your dreams.

Get out of debt faster

One of the best things you can do before you retire is to make sure that you are completely debt-free so that you’re not making those payments on a fixed income. If you’re struggling with debt or worried about falling behind on payments, it might be time to take action. Freedom Debt Relief can help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify right now.


John Russo is a Creative Manager at Freedom Financial Network. His goal is to make the world of personal finance more accessible so that everyday people can find the right financial solutions for themselves. In his free time, he enjoys hiking, reading pretty much anything, and spending time with his fiancée and two cats.