Debt, Loans & Mortgages
Key Takeaway
Prioritize paying down high-interest debt before retirement, and weigh the certainty of debt elimination against potential investment returns.
How Debt Affects Retirement
Debt obligations reduce your available cash flow for saving and investing. Carrying debt into retirement means a portion of your retirement income goes toward payments instead of supporting your lifestyle. Eliminating high-interest debt before retirement is generally a priority.
Pay Down Debt vs Invest?
A useful rule of thumb: if your debt interest rate is higher than your expected investment return after taxes and fees, prioritize paying down the debt. If your investment return exceeds the debt cost, investing may be more beneficial. However, the certainty of debt reduction has value beyond pure numbers.
Mortgage Considerations
A mortgage is often the largest debt people carry. Paying it off before retirement eliminates a major expense and provides housing security. However, if your mortgage rate is low, the mathematical case for investing instead can be strong. The right answer depends on your personal comfort with debt in retirement.
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