Americans are bringing more debt into retirement than ever before. In 2010, 38.5% of adults 75 years and older carried debt; in 2019, that number increased to 51.4%. With rising housing costs, student loans and medical debt, that trend isn’t likely to slow down. 

No one wants to spend their golden years in a state of financial panic. We answer your top questions about retiring with debt and offer tips for living debt-free in retirement.

How Much Debt Can You Have to Retire?

A debt-free retirement is the goal, but that’s not always possible. As you approach retirement age, it’s a delicate balance to ensure you’re paying down debt while saving for your nest egg. You don’t want to retire with insurmountable debt, but you also don’t want to pay down your balances completely at the expense of your retirement fund.

What’s the Difference Between Good and Bad Debt?

Typically, “good” debt is money you owe that can increase your future wealth. Mortgages, small business loans and student loans have historically fallen under this category, but it’s certainly not a clear and fast rule. For example, those entering retirement with co-signed student loans for children or grandchildren don’t have an opportunity to benefit from those student loans.

“Bad” debt, on the other hand, is more consumption-based. Your credit cards, auto loans and payday loans fall under this category. These debts typically come with high interest rates that can significantly impact your finances.

What Should I Pay Off First?

The general rule here is to prioritize high-interest debt — the bad debt mentioned above. Here’s where to start paying off debt after retirement:

Credit Cards

The last thing you want going into retirement is an overreliance on credit cards — and the accompanying bills. The first step here is to stop using credit cards. If you have multiple, make minimum payments on those with lower interest rates and make extra payments on your highest-rate account. Once that’s paid off, move on to the next one. You may also want to consider debt consolidation to help you keep track of your total owed.

Student Loans

Maybe these loans are for your own degree, or perhaps you co-signed on your child’s or grandchild’s college education. If there are multiple, start with the highest interest loan — ideally, you’ll make payments above the minimum amount. Also be sure to familiarize yourself with the various repayment plan options. Be aware that the government can withhold up to 15% of your Social Security income if you default on federal student loans. 

Car Loans

Though car loans typically have lower interest, it’s simply another expense to keep track of. An extra $400 a month could be better spent in your retirement, so make smart budgeting decisions before purchasing a new vehicle in your golden years.


Your home mortgage should be lowest on your pay-off priority list because interest rates are comparatively low. You’ll have a better return investing money rather than making extra principal payments. It may also be smart to downsize in retirement, reducing your monthly housing costs. In this case, retiring with mortgage debt isn’t a worst-case scenario, as long as you plan for it in your fixed-income budget. 

Can I Use Retirement Funds to Pay Off Debt?

If you’re burdened with overwhelming debt, you’ve likely eyed your 401(k) as a means to pay it off. But taking a loan from your retirement account should be a last resort. If you’re younger than 59 ½ years, you’ll incur a 10% penalty and have to pay taxes. The math typically doesn’t add up, plus you’re pulling vital funds you’ll need in your actual retirement years. You also miss critical accumulation time, further impacting your retirement.

Can I Retire with Debt?

So long story short, you can retire with debt, but make sure you have a retirement income plan that accounts for all your debt payments. And the faster you can pay it off, the less stress you’ll have in retirement.  If your debts are high enough that it makes you concerned about outliving your savings (or if debts are continuing to accumulate), consider talking to a professional. 

Advice You Can Trust

If you’re unsure where to start with your retirement fund — and paying down debt — talk to a Farm Bureau financial advisor. Reach out today to start planning your tomorrow.

Neither the Company nor its agents or advisors give tax, accounting or legal advice. Consult your professional advisor in these areas.

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