Welcome to how to retire on time, the show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire On Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire On Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to finance, your money, all of the above, we can pretty much talk about it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not financial advice. If you want financial advice, you can request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is David Franson. David, thanks for being here. Yep.

Glad to be here. David's gonna read your questions, and I'm gonna do my best to answer them. You can text your questions in to (913) 363-1234, or you can email us at heyMike@howtoretireontime.com. Let's begin.

Hey, Mike. Is there such thing as too much debt as I approach retirement?

Debt's a tool. And so because it's a tool, I don't wanna give an arbitrary answer of saying yes or no.

Okay.

I'm not Dave Ramsey.

Uh-huh.

Now that's not to say Dave Ramsey's all right or all wrong. If we sat down and had dinner, I think we would have more things in common than not. When there's a young person that has a lot of debt, paying down the debt quickly makes all the sense in the world. But when you have the money, and now you're doing a dollar to dollar comparison, let's say you have a mortgage of $500,000 and you're entering retirement, and you've got $1,500,000. So you could take 500,000, pay off the debt, and be done with it.

Yeah. Well, right now, interest rates, let's say, what's a high yield savings at 4% Yeah. In today's rates at the time of this recording, and your debt is 3% against you. So when you're comparing dollar to dollar, you need to understand what's best for your money. Now putting it in the market or CDs or treasuries or wherever it is, you have to understand the risk that you're taking and the cash flow.

This is a cash flow conversation. The income that the cash flow that goes to paying off the debt, and then the income that you're gonna be spending, and does it work out for your plan or not? The second part of the conversation is an emotional conversation. So if you pay off all of your debt in retirement, though it may not be financially in your best interest, emotionally, it might give you a huge sense of relief.

Yeah.

Don't keep debt to write it off for your taxes. The the amount that you actually get a write off, probably won't use it. You're probably getting the standard deduction anyway. But there is an emotional relief that you don't owe this debt anymore.

Yeah. I could see that.

So we need to live within our emotional and economic limits. I have clients that will pay off debt once they enter into retirement just because emotionally it's better for them. No problem. Mhmm. But if we're talking dollar for dollar, the comparison of the best way to advance your net worth, and to give you more cash flow and more options in retirement, more lifestyle choices, it usually doesn't work out.

So again, it's going back to what is right for the client. It's not just a financial conversation. It's a personal economic, and a personal, and as an emotional conversation that needs to be had. Now other forms of debt. Yeah.

Credit card debt, yeah, wipe that out. Yeah. You should never hold credit card debt, if you can help it. And I wanna say that with a tone of understanding that some people are in very financially difficult situations.

Mhmm.

You're carrying credit card debt. I get life can happen, and some people aren't as financially fortunate.

Mhmm.

So don't beat yourself up for it. Don't hate yourself for it. Work towards paying it down. Let's give ourself the ability to accept reality and and move forward with grace. Car debt.

Yeah.

That's the other one. Do you buy a car and pay cash or not? Again, what's the auto loan rate? Are you buying a new car, and are you okay with the quick depreciation of the asset? Do you want to buy a one year car that just came off of a lease?

Do you want to buy a used car? So those are, again, other questions, and if there's a higher interest rate, can you pay it down? There's variability there. I don't have an issue with debt in retirement, but as a rule of thumb, I don't think it makes sense to buy things in retirement and take on debt. Mhmm.

But going into retirement, if you have a low interest rate associated with that debt, doesn't bug me. It can go either way. Okay.

So if you're within five years of retirement, it might be okay. Just oh, I'm gonna get a newer car, have a car payment for a little bit as I approach retirement.

Well, yeah. I mean, where is your money going? So if you have a chance to pay down debt or put more money into a Roth, I'd put more money into the Roth. Because once you retire, you can't put more money into the Roth, but you can pay down your car faster at that point. Because you're limited on how much money you can get into retirement accounts.

Yeah. If you have a choice between getting the four zero one k match or paying down debt faster, I'd take the match. You're getting free money because your employer is offering this. And, again, you're putting money into a retirement account, which can grow without capital gains issues. So it's understanding the different options that you have, and it's a cash flow issue.

Cash flow is different than income. Cash flow is money coming in, and where and just deciding where it goes. Uh-huh. Income is the money that comes in that you spend. Yeah.

And so it's a cash flow conversation. Should you be paying down the debt faster? Is it at a stupid rate? Is it at a reasonable rate?

Okay.

Should you be maximizing and really stuffing as much money as you can in these accounts that have a retirement benefit, or do you have enough in there? Do you wanna retire sooner? If you wanna retire sooner, do you need money into a brokerage account so that you can tap into the funds sooner because you wanna retire before 59, and you need the extra cash to bridge that gap? Do you wanna pay down the debt, or do you wanna fund life insurance? Because you're concerned about dying sooner.

So let's say you're five years out, you're making the most money that you've ever made, and you wanna fund tax free accounts. So you got the Roth or you've got the life insurance policy. But if you were to die, the surviving spouse would be devastated because you wouldn't bridge that gap. Maybe you wanna bridge the gap from a life insurance standpoint because you wanna transfer the risk of dying. So these are the things that it's like when people ask a question, they're usually really, really good questions.

Mhmm. But they're not asking the full question because they don't see the full scope of what's going on.

Okay.

And this is why it's such a great question. The answer is, if it's a low interest rate, maybe you don't pay it down, because you should have assets at this point that you're now comparing a dollar to dollar comparison. But there's other things to also consider if you wanted to pay it down faster as you're approaching retirement. If you're 55 and preparing for retirement, if you're 50 and preparing for retirement, if you're 45 and preparing for retirement, if you're 25 and you're thinking long term, the answer is going to change because you're in different phases, and it's a cash flow issue. Where is the money best placed?

What is the interest rate? And what's your cash flow look like? That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time.

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