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Boomers nearing retirement age probably know they can collect Social Security starting at 62 and apply for Medicare at 65, and both of those facts should play a role in their financial planning. Unfortunately, misconceptions can also influence retirement strategies — especially when it comes to debt.
The following is a look at myths about debt that compel many boomers to wait longer than necessary to end their careers and retire. Knowledge is power — but misinformation can be equally powerful, so it’s up to baby boomers to separate financial fact from fiction and dispel these stubborn debt myths.
Myth: All Debt Is Bad
Some boomers put off retirement, because they believe a myth that can snare members of any generation — debt is debt, and all debt is bad.
“Just like you have food that is good for you and bad for you, you can have good debt that is viewed positively and bad debt that will ding your credit score,” said Paulo Lopes, financial planner and co-founder of Woodmont Financial Partners. “If you are lucky enough to have a mortgage with a low interest rate, it can make sense not to make extra payments to pay it off quicker.
“Hold on to that low interest rate and use the cash you would use to make extra payments to pay down debt with higher interest rates or invest the cash instead. With money market and high-yield savings accounts paying 5% or more, you can park your cash and figure out what investments make the most sense for you.”
Myth: You Can’t Retire Until You’ve Paid Off All Your Debt
If you believe the myth that all debt is bad, then you certainly wouldn’t want any of it following you into retirement, even though manageable debt could help you retire as early as possible.
“Many boomers believe that in order to retire on time, they must have all of their debt paid off,” said Jared Macarin, personal finance editor for MarketWatch Guides. “Some may believe they have to fully pay off their mortgages, credit card balances, personal loans or car loans before they settle in for retirement. The truth is these costs shouldn’t prevent you from retiring.
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“While it is ideal to have as little debt as possible when you retire, boomers can consider a debt consolidation loan or program to simplify their monthly debt obligations. Interest rates can be as low as 6% APR for certain loans, and there are balance transfer cards with 0% APR for a limited time. In short, there are options to pay off debt while enjoying your retirement.”
Myth: You Owe a Debt to Your Children Forever
One of the most destructive misconceptions about debt is that parents owe one to their adult children for the remainder of their natural lives.
“Another myth is that boomers need to support their adult children financially,” said Nischay Rawal, a CPA with more than a decade of experience helping individuals and small businesses manage financial challenges. “While helping family is admirable, boomers’ first financial responsibility should be securing their own retirement. Children should be independent by the time their parents retire.”
Myth: It’s OK To Cosign Loans for People You Love and Trust
Along similar lines, some people will put off retirement because they fell for a myth that made it impossible to retire on time, despite good planning and diligent saving.
“Many boomers underestimate cosigning risks,” said Alec Kellzi, a CPA with IRS Extension Online. “It makes them equally responsible for the debt, potentially forcing them to repay loans they didn’t expect to cover. This can seriously impact retirement plans and limit their borrowing options.”
Myth: You Should Never Touch Your Retirement Savings To Pay Off Debt
Nest eggs are for retirement income only, and dipping into them to eliminate toxic loans is never the answer, right?
Well, it depends on the situation.
“While preserving retirement funds is important, sometimes using them to clear high-interest debt can improve long-term financial health,” said Kellzi. “It’s about balancing immediate needs with future security.”
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