The Hidden Risk of Debt in Retirement—and How To Eliminate It Now

Fact checked by Suzanne Kvilhaug

Paying down debt is never easy, but it can be even more challenging during retirement while living off a fixed income. Retirees must carefully manage their finances to make their savings last as long as they need them to. Unfortunately, carrying debt into retirement can undermine that security, creating a financial burden at a time when options to increase your income are limited.

The good news is that there are many options to help you pay off your debt faster and comfortably manage your existing balances heading into retirement. With proper planning, you can minimize the impact of debt during retirement and enjoy financial security throughout your golden years. 

Key Takeaways

• Over 70% of adults over 50 are carrying debt, with housing debt being the most common.
• Going into retirement, aim for a debt-to-income ratio below 35%, ideally 20%, to help ensure that you are not overly debt-burdened. 
• Prioritize eliminating high-interest debt like credit cards and payday loans, which can be difficult to pay down on a fixed income. 
• Consider debt management plans, including refinancing, debt consolidation, home equity utilization, or accelerated payoff methods to reduce your debt burden in retirement. 

Why Retirees Are Carrying More and More Debt

Older Americans hold nearly half of all debt in the U.S., making a big impact on their financial security during retirement. Studies show that 71% of adults over 50 years old carried debt in 2016, compared to 58% back in 1989. Even more concerning, the median amount of debt carried by older adults was $55,300, about three times higher than in 1989 (accounting for inflation). 

“If you’re retired or close to it, managing debt isn’t just helpful—it’s essential,” said Michael Rodriguez, CFP, founder of Equanimity Wealth. “Most retirees are living on a fixed income, and when there’s no easy way to earn more, even small debt payments can start to feel like a big weight.”

Several factors contribute to the increasing debt burden among retirees:

• Rising housing costs have left many people entering retirement with mortgage debt.
• Health care expenses continue to outpace inflation, forcing some people to rely on credit.
• Supporting adult children or grandchildren financially has become more common.
• Not enough retirement savings may lead to using debt to supplement income.
• Longer lifespans mean retirement savings need to stretch further. 

According to Rodriguez, “People ages 65–74 have seen average debt quadruple, and for those 75+, it’s gone up more than sevenfold. That’s a lot of pressure when you’re supposed to be slowing down.”

Overall, as Americans age, they tend to carry less debt stress, but those in low-income households will experience greater financial strain. Debt can transform retirement from a period of enjoyment to one of ongoing financial anxiety. 

How To Estimate Your Debt Level in Retirement

It’s important to understand the full scope of your debt before entering retirement. 

Below are a few steps to help you understand your debt burden. You can also use a retirement calculator to estimate what your monthly income will be during retirement. 

1. Calculate Your Retirement Income

First, begin by estimating your monthly income from all sources of retirement income, which may include: 

• Social Security benefits 
• Pension payments 
• Required minimum distributions (RMDs) from retirement accounts 
• Part-time work income 
• Passive income from investments 
• Rental property income 

2. Calculate Your Monthly Debt Obligations

Add up all debt payments you expect to pay each month during retirement, which may include: 

• Mortgage or rent 
• Car loans 
• Credit card minimum payments 
• Student loan payments 
• Personal loans 
• Medical debt payments

3. Calculate Your Debt-to-Income (DTI) Ratio

Divide your total monthly payments by your total monthly income, then multiply by 100 to get your debt-to-income ratio. 

“As a general rule, I tell clients to aim for a debt-to-income ratio of under 35%, and ideally closer to 20% if possible,” said Rodriguez. “The lower your DTI, the more breathing room you have in your budget. If you’re over 45%, that’s a red flag—especially if you’re on a fixed income.”

Tip:

Your DTI ratio provides a good benchmark to assess your financial health heading into retirement. 

5 Types of Debt You Should Never Have in Retirement

Not all debts are bad to have in retirement; in fact, some debt can offer benefits, such as liquidity or tax advantages. For example, maintaining a low-interest mortgage in retirement might make sense if your investment returns exceed the interest costs. 

However, there are several types of debt you should avoid carrying into retirement: 

1. Credit Card Debt 

Credit card debt typically carries high interest rates that can quickly erode retirement savings. In 2024, 68% of retirees with debt had credit card debt, according to a survey from the Employee Benefit Research Institute.

Rodriguez noted, “Credit card debt is tough because the interest adds up fast. Many retirees end up stuck making minimum payments that barely cover the interest, which leads to debt that lingers for years.”

2. Tax Debt 

Tax debt can have serious consequences for retirees. “The IRS can take up to 15% of your Social Security,” Rodriguez explained. “They can place liens on your property or even restrict your passport if you owe a lot. While they rarely go after retirement accounts, they can—so it’s not something to ignore.”

3. Payday Loans

These short-term, high-interest loans can trap retirees in a cycle of debt. Rodriguez warned, “Payday loans are even worse [than credit cards]. The fees are astronomical—some equivalent to a 390% APR—and they’re designed to trap you in a cycle of borrowing. I’ve seen people’s entire Social Security checks get swallowed by payday loan repayment.”

4. Student Loan Debt 

While many people associate student loans with younger adults, an increasing number of retirees are carrying debt from their education, either from their own loans or from helping children or grandchildren. 

“A lot of older borrowers co-signed loans for their kids or took on Parent PLUS loans,” Rodriguez said. “If those fall into delinquency, Social Security benefits can be garnished. That can take a serious bite out of your income.”

5. High-Ratio Mortgage Debt 

The most common type of debt that near-retirees are carrying is housing debt. While older mortgages typically have reasonable interest rates, a high mortgage payment relative to your retirement income can severely restrict your finances. If you will be entering retirement with an existing mortgage payment, aim to have it account for no more than 25% of your monthly income. 

How To Manage Debt in Retirement: Strategies and Debt Relief Options

If you’re approaching retirement with a large debt burden, there are several strategies that can help improve your financial situation. 

Refinancing

Refinancing debt can lower interest rates and monthly payments, making debt more manageable on a fixed income. 

“Refinancing in retirement isn’t about rate-chasing—it’s about cash flow control and financial flexibility,” said Gabriel Shahin, CFP,  principal and founder of Falcon Wealth Planning. If you’re sitting on high-interest debt, the priority is simplifying liabilities and eliminating payment volatility.”

Consider the following options: 

• Mortgage refinancing: If interest rates have dropped since you purchased your mortgage, refinancing your home can reduce your monthly payment and possibly shorten your loan term. 
• Auto loan refinancing: Similar to mortgages, refinancing an auto loan can also lower your monthly payment, just be careful not to extend the term of your loan. 
• Personal loan for debt consolidation: Using a personal loan with a lower interest rate to pay off high-interest debt can save you money over time. 

When refinancing, be cautious about extending the term of your loan.

“Avoid stretching out terms unless the goal is clear: preserving liquidity for longevity, not just lowering monthly payments,” warned Shahin. “The goal: lower cost, shorter timeline, and a payoff horizon that still fits your financial runway.”

Home Equity 

Your home equity can be a valuable resource for managing retirement debt: 

• Home equity line of credit (HELOC): A HELOC provides flexible access to funds as you need them, though interest rates tend to be variable, and if you don’t pay the balance, lenders could take your home.
• Home equity loan: Sometimes called a second mortgage, a home equity loan offers a lump sum loan with a fixed interest rate.
• Reverse mortgage: Reverse mortgages allow homeowners over the age of 62 to convert home equity into cash without monthly mortgage payments.

Debt Settlement

For people struggling with a large amount of unsecured debt, debt settlement could be a good option. In a debt settlement, you are able to negotiate with creditors to pay less than the full amount of money you owe. 

Warning

Keep in mind that a debt settlement usually requires having access to cash for the agreed-upon settlement payment, and it could negatively impact your credit score. 

Consolidating Debts

Debt consolidation combines multiple debts into a single loan with one monthly payment and one interest payment. Debt consolidation can lower your overall interest rates, provide a clear payoff date, and can be used in the form of personal loans, balance transfer credit cards, and home equity loans. 

Credit Counseling

Working with a professional credit counselor can provide helpful guidance on how to create a realistic budget, negotiate with creditors to lower interest rates or payments, set up a debt management plan, or provide you with financial education to avoid future debt. 

Paying off Debts Faster 

To pay your debts off faster, Shahin recommended retirees try what he calls snowballing with purpose. 

“Start by categorizing every debt—not just by balance, but by interest rate, and whether or not it’s tax-deductible,” he said. “The real cost of a loan isn’t always the sticker rate. From there, automate extra principal payments toward the highest-interest, non-deductible debts first—usually credit cards. This provides the biggest bang for your buck.”

There are several popular strategies to help you pay off debt: 

• Debt snowball: Paying off the smallest dollar amount first and working your way to the highest amount. This method keeps you motivated by celebrating the small wins first. 
• Debt avalanche: By paying off debts with the highest interest rates first, you will end up saving money in interest payments in the long term.
• Extra payments: Applying any extra earnings or non-emergency savings towards your debt principal. 
• Increasing your income: Starting a side hustle or monetizing your hobbies to increase income could help you pay off debt faster. 

Should You Pay Down Debt or Save for Retirement First?

This answer is going to vary depending on your circumstances, but it’s recommended to focus on paying off any high-interest debt (credit cards, payday loans) before heavily investing in retirement savings. At minimum, you should contribute to your employer retirement plan to receive any matching contributions while working on paying down debt. 

What Is the Greatest Risk That Most People Will Face in Retirement?

Outliving your savings is considered the greatest financial risk in retirement. Carrying unmanageable debt into retirement can increase the risk of draining your retirement funds faster than expected. Other concerns are changes in the market, inflation, and unexpected medical expenses.

How Much Money Do Most People Have When They Retire?

Baby boomers (ages 61 to 79) currently have an average of $249,300 in 401(k) accounts and $257,002 in IRAs. (Keep in mind that many may be invested in one or the other, not both types of accounts.) Gen X (ages 45-60), the next generation to retire, has average retirement savings of  $192,300 in 401(k) accounts and $103,952 in IRAs.

The Bottom Line

Managing debt is an important part of preparing for retirement that often gets overlooked. By knowing your debt-to-income ratio, eliminating high-risk debts, and having a good debt management strategy before entering retirement, you can improve your financial security and make your savings last.

As you get closer to retirement, consider consulting with a financial advisor who specializes in retirement planning to help you create a strategy that addresses both debt management and your overall financial security.