Retiring With Debt: What Are My Options?

The picture of a debt-free retirement is appealing, but the reality looks very different. Nearly all retirement-age adults in the U.S.—about 97%—carry some form of debt. Credit cards are the most common, with more than 92% of retirees holding a balance at some point. Auto loans are next at over one-third, followed by personal loans (around 1 in 5). Even student debt, while less common, still affects about 8% of retirement-age adults [1].

Debt in retirement may be common, but it isn’t easy. It can reduce cash flow, add stress, and limit flexibility at a time when most people hope for the opposite. The key is not just whether you carry debt into retirement, but how you manage it once paychecks stop.

What’s the Deal?

It’s no secret that today’s retirees are carrying more debt than previous generations [2], but what’s driving the trend? Several factors have contributed:

• Rising housing costs. Many people are entering retirement with mortgages that last longer than in the past. Some refinanced during low-interest rate periods, extending the length of their loans [2].

• Higher healthcare expenses. Out-of-pocket medical costs have climbed steadily [3], and unexpected bills can push retirees to rely on credit cards or personal loans [4].

• Student loan burdens. Not only are some older adults still paying off their own education debt, but many have also taken on Parent PLUS loans to help fund their children’s college costs [5].

• Lifestyle and longevity. People are living longer, which can stretch savings thin. This makes it increasingly important for retirees to plan carefully so their income covers both lifestyle and potential gaps [6].

• Economic pressures. Inflation, job losses late in careers, or financial shocks such as the 2008 recession or the pandemic left lasting impacts on household finances [2].

Taken together, these factors help explain why debt has become a common feature of retirement rather than an exception. Understanding the “why” is an important step in planning how to address it.

Strategies to Manage Debt Before or During Retirement

If you’re retiring with debt, it’s important to assess your repayment options and overall financial plan. Some potential strategies include:

• Prioritize high-interest debt

  • Credit cards and other high-interest balances can be especially costly. Paying these down first may free up cash flow faster.

• Consider refinancing

  • For mortgages or other large loans, refinancing into a lower interest rate or different term could reduce monthly payments.

• Downsize or relocate

  • Selling a larger home and moving to a lower-cost property or area may eliminate or reduce mortgage debt while also lowering expenses like taxes and maintenance.

• Snowball or avalanche repayment methods

  • Debt snowball: Focus on paying off the smallest balances first for quick wins.

  • Debt avalanche: Focus on the highest-interest debt first to minimize long-term costs.

Each approach has advantages, and the right choice depends on your personal situation and preferences.

Should You Pay Off Your Mortgage Before Retirement?

One of the most debated questions is whether to enter retirement mortgage-free. There are pros and cons to both approaches:

Pros of paying off your mortgage:

• Eliminates one of your largest monthly expenses.

• May provide peace of mind and a sense of financial security.

• Frees up cash flow for other retirement needs.

Cons of paying off your mortgage:

• Ties up a large portion of your wealth in home equity, which is less liquid.

• Paying off a low-interest mortgage may not be the most efficient use of funds if those dollars could earn more in investments.

• May reduce cash flow flexibility, especially if you deplete savings to eliminate the balance.

Deciding what’s right for you

Beyond the basic pros and cons, the decision often comes down to personal circumstances and priorities. One practical way to compare your options is by looking at monthly cash flow: how much your investments might earn versus how much your mortgage costs.

In the example below, we assume:

• $500,000 in savings, earning 5% annually (about $2,083/month)

• A $100,000 remaining mortgage, with rates ranging from 1% to 7%

If you pay off the mortgage: You have less invested ($400,000), so your monthly earnings are lower ($1,667). But since you’ve eliminated the mortgage payment, your net is the same $1,667.

If you keep the mortgage: You keep more invested and earn more upfront ($2,083), but part of that goes to the bank. With a low mortgage rate, your net cash flow is higher than the pay-off scenario. With a higher rate, your net shrinks and may even fall below the pay-off option.

This makes the tradeoff clear:

👉 If your mortgage rate is low, keeping it could help you stretch your savings further. If it’s high, paying it off could give you more stability and peace of mind.

What Does This Mean for You?

For those with modest income or tight budgets: Eliminating the mortgage can relieve financial stress and make monthly cash flow more manageable. It may be worth prioritizing the payoff if it helps cover essential expenses like healthcare, insurance, and daily living costs without dipping into investments.

For those with comfortable income and savings: Keeping a low-interest mortgage might make more sense. You could use extra funds to invest, maintain liquidity, or pursue lifestyle goals like travel. In this case, paying off the mortgage isn’t strictly necessary to feel financially secure.

Stress and lifestyle considerations: Some retirees place a high value on peace of mind. If sleeping easier at night or reducing financial complexity is important, paying off the mortgage may be worthwhile regardless of income level, but it’s still important to look at your scenario realistically. Ask yourself this question: Will I feel more secure knowing the debt is gone, or will I feel more secure knowing I still have accessible savings and flexibility if unexpected costs arise? It all depends on which type of security—emotional or financial—you value most.

In short: with a low mortgage rate, you could have extra money every month by keeping it. With a high rate, paying it off could be worth it for the peace of mind.

Ultimately, the “right” choice isn’t universal. It involves weighing income, expenses, interest rates, investment opportunities, and personal priorities. For a deeper look at how income and expenses can align over time, our article on How to Retire Without Running Out of Money walks through a hypothetical Income Needs Analysis, a tool designed to illustrate how cash flow may play out in retirement.

The Bottom Line

Entering retirement with debt is more common than many realize, but it requires thoughtful planning. Understanding the types of debt you carry, how they affect your cash flow, and the strategies available to manage them can help you move into retirement with greater confidence. Because each situation is unique, working with a financial professional can help you evaluate your options.

For more helpful insight on your retirement, our team of retirement experts is available to discuss strategies and considerations that can help you make informed decisions as you approach retirement and manage any uncertainties. As part of those conversations, we can also walk through a hypothetical Income Needs Analysis to help illustrate what your expenses and savings could look like in retirement.

The concepts expressed herein represent the views and opinions of Pension Consultants, Inc., and are not intended as legal, tax, or investment advice for any specific individual, account, or plan.

Source(s):

[1] Cattanach, Jamie. "97.1% of Retirement-Age Americans Have Nonmortgage Debt, With Residents in Largest Metros Owing Median of $11,349." LendingTree, 21 Jan. 2025, https://www.lendingtree.com/personal/places-where-people-at-retirement-carry-the-most-debt/

[2] White, Martha C. “Why Retirees Are Carrying More and More Debt.” AARP, 16 Aug. 2024, https://www.aarp.org/money/retirement/retirees-carrying-more-debt/

[3] Sigel, Zack. “The Unexpected Cost That Could Ruin Your Retirement.” Investopedia, 3 Jun. 2025, https://www.investopedia.com/the-unexpected-cost-that-could-ruin-your-retirement-11745441

[4] Cottrill, Alex, et al. “What Are the Consequences of Health Care Debt Among Older Adults?” KFF, 26 Jul. 2024, https://www.kff.org/medicare/what-are-the-consequences-of-health-care-debt-among-older-adults/

[5] Silvestrini, Elaine. “Borrowers Over 50 With Student Loan Debt.” Kiplinger, 15 Sept. 2022, https://www.kiplinger.com/personal-finance/credit-debt/loans/student-loans/605222/borrowers-over-50-with-student-loan-debt

[6] Schroeder, Jacob. “How to Manage Longevity Risk in Retirement.” Kiplinger, 10 Dec. 2024, https://www.kiplinger.com/retirement/retirement-planning/how-to-manage-longevity-risk-in-retirement