For Mark Roberts’ Use:
Paying off the mortgage and other debts before entering retirement was once a common goal, but weakening economic conditions and the housing crisis have made this much more difficult in recent years. Rising prices on everything from food to fuel have also also cut into household budgets, contributing to the burden of debt faced by most Americans.
Retirees once hoped to stay in their homes, with the mortgage paid off, as part of their plan for a retirement with minimal expenses. Many also hoped to cash in on their home’s equity to boost their retirement funds. This may indeed be a solid plan for ensuring low monthly expenses, but retirees cannot count on extra cash from equity under current housing conditions. Another common plan is to sell the home, downsize into a lower-priced house, and utilize the profits from the original home as part of a retirement fund. Obviously, with housing prices remaining low and the housing market sluggish, this may no longer be a viable option for many retirees. Houses are often difficult to sell, and sellers are not seeing the profits they once expected.
These trends have underscored the importance of considering debt in relation to retirement. When households carry too much debt, their well-intentioned plans for retirement quickly fall apart. Also, as households spend more money to pay debts each month, that impacts the amount they are able to save for retirement. During tough economic times, it is not uncommon for individuals to cut back on retirement savings in order to cover their outstanding monthly debts. Doing this can have a lasting impact on retirement savings, and when the individuals eventually retire they will feel again the pinch from failing to save enough money years ago. Those who carefully manage household debt, on the other hand, have a greater chance of successfully saving a comfortable fund for retirement.
