Things to Avoid: Debt in Retirement!
Posted on | September 18, 2008 |
“You’re saying that you’re all washed up
Got nothing else to give
Seems like you never figured out
How long you have to live”- The Traveling Wilburys
I’ve shied away from Dave Ramsey. I’ve seen some blogs talking about him, and seen his multitude of books in passing in book stores, but I’ve so far avoided him. I think it must be because he is everywhere I turn.
It’s my contrarian personality I suppose.
But I can ignore him no longer. I saw him on T.V. the other day, talking about the mortgage/credit crisis and what you should do about it. He made a lot of sense. I’m not saying I’m going to become a convert, but I am listening.
I stumbled onto an article at Yahoo! Finance the other day by Dave Ramsey, titled: Dave Ramsey on Debt in Retirement.
This article caught my eye because I hear quite a few of my parent’s friends talk about how they’ve never been more in debt than they are now. These are people who have just retired, or nearing retirement. It certainly makes me want to do everything in my power to avoid being in that situation when I reach that point in my life.
If you’re a couple of generations removed from the boomer generation, you might be wondering what the big deal is. I’ve even heard some boomer’s say, “who cares about debt? They can’t make me pay when I’m dead.”
This line of reasoning always makes me think of the quote at the top of this post. People often have so much anxiety about dying young, that they never plan for the far more likely scenario: a long life.
But here’s what Ramsey has to say about why debt in retirement is a big deal:
“It’s imperative that debt be eliminated as soon as possible, for that then gives you control of your most powerful wealth-building tool: your income. It is very difficult to service debt when you’re in retirement, and most people who have debt going into retirement are not people who have big savings going into retirement. So it creates a really catastrophic situation.”
He goes on to say:
“I recently talked with a 72-year-old lady who owes $80,000 on her house and she’s trying to live on a monthly Social Security check of 1,100 bucks … and what that says is that she’s not going to be able to keep that house, not if she wants to live and eat.
This idea that a mortgage is forever is a bad plan; this idea that debt is forever is a really bad plan. Debt will only steal your golden years away from you.”
Hey, this guy makes a lot of sense! 
When he talks about boomers and debt, it really drove home the “Debt as Megatrend” concept detailed in Stock Investing For Dummies, by Paul Mladjenovic.
“The fastest growing area of bankruptcy filers are senior citizens — and college-agers are right behind them. So, as the boomers, who were notorious for overspending and under-saving, start hitting retirement, I wish I could be happier as to what I’m going to see. But the statistics aren’t good, and past financial sins have a nasty way of catching up with you.”
I would encourage everyone to read this article. If you’re a boomer - it’s never too late to get moving in the right direction, and if you’re just out of college or highschool - take heed and avoid the debt trap!
- FDIC Myths, Legends and Misconceptions.
- Money as a Debt Magnifier.
- 7 steps to getting out of debt.
- How Does Debt Settlement Affect Your Credit Score (And More!)
- Will Dave Ramsey's "Total Money Makeover" Really Get You Out of Debt?
- Half of Baby Boomers Are Not Ready to Retire, Make Sure You’re on Track.
- Planning for Your Retirement The Smart Way
- How to Maintain Optimism in Tough Economic Times
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Unique visits since 2008:
September 18th, 2008 @ 9:28 am
[...] Ace Stryker - Daily Herald wrote an interesting post today onHere’s a quick excerptIt is very difficult to service debt when you’re in retirement, and most people who have debt going into retirement are not people who have big savings going into retirement. So it creates a really catastrophic situation.” … [...]
September 19th, 2008 @ 4:39 pm
Although I don’t have the publicity juggernaut that Mr. Ramsey has, few of us know when debt is too much until it actually is. How sensational to profile a 72 year old women with a house payment!
Little is said of her financial situation prior to that point. No mention of a husband (who may or may not have been pensioned, may or may not have had a lengthy illness or may or may not be still around as in dead or divorced).
Debt is more accurately a case of management. We will always have the opportunity to use debt to our advantage, it is how well we manage it - and this can only begin when we are still working - that will make all of the difference in our retirement plan.
Debt acts like one of the three retirement taxes: inflation, debt and taxes on earning and investments. Many of us fail to save enough all while looking at the return on the investment rather than the “what-will-be-left”.
Then again, your Boomer parents and their friends may be simply wrapping themselves around the idea that they will always be working because kids are not moving out when they should, parents are coming back to live with them when they shouldn’t, health insurance costs much more than they had ever planned on paying and the invention of the 401(k) still mystifies far too many of them. In that kind of scenario, debt is almost inevitable. But it can still be managed.
Perhaps you’d consider taking a gander at my philosophies on the subject in Retirement Planning for the Utterly Confused (McGraw-Hill, 2007).
September 29th, 2008 @ 11:10 am
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