Approaching Retirement With Debt? Here Are 3 Things Not to Do

Approaching Retirement With Debt? Here Are 3 Things Not to Do

It's a good thing to retire debt-free. But don't compromise your finances in another way in the course of paying off debt. If you're nearing retirement with debt, you're in good company. The Center for Retirement Research found last year that the share of U.S. households over age 65 carrying some type of debt has risen from 38% in the late 1980s to 63% as of late 2023.

1. Tapping a small nest egg

It's a smart move if you have, say, $500,000 to your name. But if your 401(k) or IRA balance is closer to $100,000, then emptying out 40% of it isn't your best bet.

2. Claiming Social Security early

But if you file for Social Security before reaching full retirement age -- which is 66, 67, or somewhere in the middle, depending on your year of birth -- then you'll reduce your monthly benefits on what's generally a permanent basis.

3. Signing a reverse mortgage

First, a reverse mortgage is actually debt. Granted, you're not making a payment every month so much as you're receiving a payment based on the equity you have in your home.

A better way to approach your debt is to extend your career, pick up a second job, rent out a portion of your home, or consolidate your debt.