September 22, 2014

Retirement and Debt: How Do You Handle The Two?

Our just completed vacation trip was expensive. Importantly, it was planned and budgeted for well ahead of time. We would not have pulled the RV out of the driveway if the trip was going to be funded with credit card or home equity debt. We would have stayed home if the money spent would mean serious cutbacks once we returned.

Retirement is not a time to be worried about excessive debt. Yet, recent studies show too many of us may be putting ourselves in that position. A story in USA Today last month showed some disturbing trends. According to the article the percentage of homeowners age 65 and older carrying mortgage debt grew from 21% in 2001 to 30% just ten years later. For those over 75, the rate almost tripled to 21%.


After the housing market collapse of 2007-2009 the increase in housing debt is particularly surprising. Seeing housing prices plummet or knowing so many folks are upside down on a mortgage, one would think extreme caution would be called for. Maybe some of the mortgage increase among older citizens is due to helping a struggling son or daughter by co-signing. Or, refinancing has resulted in a needed increase in monthly cash flow. But, regardless of the factors, being 65 or 75 or even 85 and carrying a mortgage has the potential for putting a satisfying retirement on shaky footing if major problems develop that require extra allocation of resources.


From my perspective, even scarier was the dramatic increase in credit card debt. The average balance for 65 to 74 year olds was $6,000 during the last full reporting period, or triple what it was ten years earlier. For those 75 and older the debt went from virtually zero to $4,600. With credit card interest usually in double digits that type of rolling average means hundreds of dollars in interest down the drain every year and a balance that is never paid off.


So, I have three questions for you. Please leave a comment that answers any or all of them. If you don't choose to publicly answer, then I urge you to think about your situation and decide if you are comfortable.


1) Do you carry a mortgage? If so, does it ever worry you?


2) If you could pay off your mortgage would you, or are there tax advantages or other reasons why maintaining it makes sense in your situation?


3) Do you have a monthly credit card balance or do you pay off the bill in full each month?


All of our situations are unique and none of us can be in a position to fairly judge someone else's decisions in this area. That being said, I believe it is helpful to not only look at your own situation with a critical eye, but get a sense of what others are doing.


Who knows, you might decide you could make a change - or are pleased with exactly how you are handing your debt. Being debt free in contemporary America is not easy, and some would argue, not wise. Using other people's money is smart.


I am not comfortable with debt so I avoid it. What about you?





86 comments:

  1. It will be interesting to read how your readers respond. I am betting we are the norm.
    We have not had a mortgage in twenty years, but we will at the end of next month. We are going to buy a house and then sell our current one. Once our current one sales, we will pay off the other. My husband and I are actually shocked that we will be able to take out a 30 yr loan. We are both retired at 64 and 57. Thirty years is a long time!
    We can easily carry both houses- financially.
    We don't use ATM machines. We do use credit cards, but never carry debt. I am too cheap to pay ten cents on a dollar. I think we spend way more money using credit cards then we do in cash.

    ReplyDelete
    Replies
    1. So, you will have a mortgage but only as a type of bridge loan to cover the purchase of a new home until the old one sells. That is smart.

      Like you, Janette, I am pretty sure I spend more because of the convenience of a credit card. That I pay it off in full each month is good, but the totals are still higher just because a card is so convenient.

      Delete
  2. Sorry you had to experience that blip in the beginning of the day.....the day will get much easier as it rolls along:)

    We are mortgage free.....we checked into the advantages of keeping the mortgage in order to save on taxes. It turned out it we could either save the tax money or turn around and give it to the bank in interest. We elected to pay the mortgage off and have peace of mind instead. We have never regretted it.
    We do have a credit card....we use it for travel, mail order prescriptions, online shopping, etc. We make a point to pay off the entire balance monthly. I think it would be hard to not have a credit card in our current society....don't think you can even get a rental car without one.
    I was amazed at the statistics of people our age....me 62 and my husband 64 that have mortgages and credit card debt....even large amounts! All I can say is WOW!

    ReplyDelete
    Replies
    1. First, Thank you, Linda, for resending your comment. Your take on this subject is important.

      Yes, a credit card has become a necessary form of identification. Buying an airplane ticket for cash, for example, will get you some serious scrutiny.Rental car companies won't give you a car without one. But, the key is how you use it.

      I know that life's emergencies sometimes require rolling over a credit card balance. It is the habit of doing that on a regular basis for normal living that would make me worry.

      Delete
  3. We've been debt free since 2001. No mortgage, car loans, credit cards, nothing. BUT (and here's that but) we had to take out a mortgage (30 years!) on our beach house to do a forced upgrade a few months ago. I do NOT however, consider this mortgage personal debt since we turned the beach house over to an annual rental. I consider it a business debt instead and the rental income is paying off the debt. I plan on selling the rental in the very near future and that'll be the end of that.
    We have also taken out zero-interest credit card loans of late to buy a flat screen TV (24 months interest free-we paid it off in 9 months) and now a zero interest credit line to do some personal home improvements (paid off in 6 months for kitchen and bath upgrades). Why should I use my own retirement money when I can get zero interest? If we run into trouble, I have the cash to pay it off (including the business mortgage).
    We were thinking about buying a newer car but have you seen those prices lately? $45K for a new car? $39K for a used car? Insane. We could get hefty rebates BUT only if we borrowed $10K in financing. No thanks. We like owning our cars outright and I refuse to borrow and pay interest, so our current cars will suffice.
    Debt in retirement, to us, is the kiss of debt. I retired in 2001 and heavily downsized so we could be debt free. Credit however, and a high FICO score is important should an emergency hit (as what did with the beach house). My FICO score at that time was zero but by adding my name on my husbands credit cards, his score became my score and I was able to take out that much needed mortgage.
    Live and learn. Credit IS important. Debt is not.

    ReplyDelete
    Replies
    1. The type of mortgage you mention, Cindi, is good debt. It is designed to generate cash flow and has a positive outlook. Of course, if the market collapses again you may find selling the rental a problem. But, in that case, more people will need to rent because they can't buy so you are still in a good position.

      I understand the zero interest credit card use. I have never done that but if you are able to pay it off at any time and it doesn't turn into a high interest loan then it seems to make sense. You are using your retirement money to pay the monthly nut, but spread over a longer period of time.

      I will only buy used cars and then, only for cash. The prices today are higher than our first two houses. One of our vehicles is 11 years old, gets driven only 5,000 miles a year, and requires a few hundred dollars in maintenance to keep it running. When it starts to cost more, we will become a one car family.

      Delete
    2. I, personally, don't believe in "zero interest." If the seller is willing to finance you at zero interest for a period of time, it means the price has the interest embedded. I'd be surprised if you cannot find a comparable product more cheaply when no "zero interest" offer is made.

      Delete
    3. First I 'buy' the product after I get the best price, then I apply for the zero interest. The cost has already been set after much shopping so there are no hidden charges.

      Delete
  4. Bob, this is a fascinating topic! Recently, I have noticed two trends among friends of retirement age. Some are determined to check every item off their bucket lists, regardless of the cost, and the other group is focused on downsizing to the point of a spartan existence. Thankfully, my husband has worked in finance for over 30 yrs and has kept us on track, saving for retirement. We purchased very modest homes when we were first married, and paid our first 30 yr mortgage off in less than 10 yrs by working hard and flipping another house. We have never allowed ourselves to be house-poor, nor have we been tempted to buy brand new vehicles. In his work, my husband has seen many couples fail, financially, due to overspending in these two areas: housing and transportation. As you mentioned, credit cards are a necessity for most of us, but we've always been careful. We shopped for the one that provided points, and we pay it off every month. Using our credit card earns us about $400, annually, and we pay nothing for the card. That being said, there have been times when we borrowed money from our bank,short term, like Janette, in order to make money on property. When we were younger, it seems that we were more willing to take risks. Now we simply want to enjoy life, yet keep our eye on the bottom line to try to ensure that we won't be a financial burden on our kids. Our biggest question, currently, is whether or not we should invest in long term care insurance. It is so expensive, and we're hoping we have enough to "self insure" but a person can't be sure of how long we'll live, nor how much it will cost. Bob, I'm really anxious to read the comments your questionsthis will generate!

    ReplyDelete
    Replies
    1. Long Term health insurance is an important subject. Many companies that used to sell that product have gotten out of the market. They are finding they are losing money for a variety of reasons and no longer find it viable to them. To me, that is an important indicator. If companies are pulling out then giving my money to one of the survivors would make me very nervous.

      The rates are so high and the restrictions so numerous Betty and I made the decision several years ago to not buy LT health insurance. If need be we can self insure.

      Delete
  5. After many years of being mortgage-free, we opted to purchase a second residence which has put us into mortgage debt. We wrote a 15-year mortgage but have the cash flow to accelerate payments to pay off the note in a total of 9 years. We have only about 6 years to go to get back to a mortgage-free environment. With the up-tic in the real estate market, we are building some equity for the time when we won't be able to travel as much and will sell one of the residences.

    Credit cards are indeed a necessity. I've regularly used a single credit card for almost all purchases since 1986 and pay the bill fully each month. Using a credit card in today's environment is much safer than using a debit card and I get a bonus 1-5% of each transaction back as a statement credit.
    John

    ReplyDelete
    Replies
    1. The card I use the most does give back 1% in cash. That 1% seems like a paltry amount but when compared to most CD rates today stacks up pretty well and the card comes with no fees.

      Delete
  6. Hi Bob ~ We are not only partially retired, but have the means to pay off the remainder of the mortgage. But more importantly, we use our credit card to our advantage: I am the queen of rewards points! Both our personal and business cards have rewards points programs. We pay off all debt every month. While these cards do have an annual fee, so far I have used the points to buy: Two flat screen tvs, my kitchenaid stand mixer, my food processor, two Ipod Nanos, enough best buy gift cards to buy a Galaxy Note tablet and a second computer screen. And I never pay for Starbucks! I use points to get gift cards! Some hotels also have gift cards for rewards points. You just need to do the research. And always, always, always pay off the balance in full! Pretty cool, huh?

    ReplyDelete
    Replies
    1. Very cool indeed! I prefer to get cash taken off the charge when I accumulate enough points (20,000 points = $200 off the next bill) but I know lots of folks like you who use those points for all sorts of things.

      Delete
    2. If you use the bonus points for certain gift cards--for example a card worth $50 at a restaurant that you bought for $45 worth of points--you get another nice little bonus.

      Delete
    3. One of my daughters has the system figured out for her family. She buys gift cards at a local supermarket chain for places like Lowe's and Home Depot and then uses those for family needs at home. The supermarket gives her points for all the money spent on the gift cards that she uses to drop her gas price by up to $1.00 a gallon.

      Delete
  7. Ages 62 and 61. Retired as of 2010. Two paid-for houses (one is a rental and generating income). Two paid-for cars. Credit card paid in full each month. We also take advantage of short-term zero-interest loans and pay them off in time. Decided against LT care insurance for the reasons you listed. So far, so good.

    ReplyDelete
  8. By choosing to rent a house (at least for the moment), I no longer have a mortgage although I do have a house payment of course. I have tax debt from having to use retirement money to live on and selling stock (I'm negotiating with the IRS as I will probably never owe taxes again, lol), as well as some student loans. My credit card debt is moderate, and I did buy a car and take out a car loan. My next car will be paid for with cash and this is my first car loan ever but because of my medical needs it had to be done. I use debit visa cards rather than cash. I don't THINK I spend more, but it's so much easier to download all the account information in quicken than entering all those receipts.

    ReplyDelete
    Replies
    1. You had a major lifestyle change last year, Barb, in your move from Texas so a higher than normal debt load is to be expected.

      From my understanding a debit card is just like spending cash since it comes directly from your account but with one big difference: the fraud protection offered by most credit card companies doesn't apply to debit cards. You can't dispute a charge like you can with a credit card.

      That being said, it is much more convenient than cash. If you don't use it for on-line purchases I don't see any downside.

      Delete
    2. Visa loaded credit cards are equally protected but you should use them as a cc rather than with a pin. Always always always. The main problem with a debit card is the pre authorizations and money holds although I have never had a problem.

      Delete
  9. We paid off our mortgage when I was 57 and my husband, 58. He retired in December at 63 and turned 64 in February. I'm still working part time. We sold our house in June and made the decision to purchase another at the same cost to keep from going into debt. As the area we chose to move to was more expensive, we didn't get as nice a property, but with the improvements we have made it is very comfortable. Best of all, there are no mortgage payments and we achieved our goal of moving near our daughter and her family.
    We use a credit card for gas and a few other purchases, but always pay it off each month. We are facing the dilemma of aging vehicles, though. I'm unsure whether we'll take on debt to replace them or not.

    ReplyDelete
    Replies
    1. You and your husband are managing things well. The car situation is a stumbling block. My wife isn't really ready to be a one car family since she and I are involved in some different things and one car would make scheduling tiresome. But, the cost of the vehicle and the thousands of dollars each year to keep it on the road doesn't sit well with either of us.

      Delete
  10. We have only owned one home and paid it off in 8 years. We use two credit cards and charge almost everything. They are both paid off in full each month. The rewards on one pays for our Costco membership each year, and we use the rewards on the other one to pay for Christmas. We paid cash for our last vehicle and will do the same for the next one. Paying interest is a way to make others rich and us poor. We avoid it if at all possible. I have been retired for two years, and my husband will retire Sept 30th. I have found reading your books and blog very informative as we begin this next adventure.

    ReplyDelete
    Replies
    1. Thanks, Susan, for the recap as well as the kind words about the book and blog. I am beginning to sketch out the ideas for a new book since the topic of retirement is constantly evolving.

      Delete
  11. To answer your questions directly...

    1) Do you carry a mortgage? If so, does it ever worry you?

    Paid off so no worries there

    2) If you could pay off your mortgage would you, or are there tax advantages or other reasons why maintaining it makes sense in your situation?

    In Canada where I live there is no morgage interest deductability on a personal residence so unless you are borrowing to invest (and not in a retirement account), mortgages on your personal residence are mostly not tax advantageous.

    3) Do you have a monthly credit card balance or do you pay off the bill in full each month?

    I use a credit card all the time (travel points for me) but always paid off in full by the due date.

    About the only time I could imagine a mortgage in retirement as the lesser of 2 evils is that I think they make more sense than a so called reverse mortgage. (Even then, personally, I'd sell and rent if it came to that.) Otherwise, having a mortgage in retirement is a way to add stress to what should be an enjoyable time in your life.

    ReplyDelete
    Replies
    1. I'm glad you mentioned reverse mortgages. On paper they seem like a great idea to provide a solid cash flow until one's death. But, the upfront costs are brutal and the complications to probate or heirs after one's death should cause caution.

      There are unscrupulous companies who claim to be helping you set up a reserve mortgage when in fact you are signing over your house to a company that then boots you out and sells the house from under you.

      Delete
  12. 1) Do you carry a mortgage? If so, does it ever worry you? No, paid off house 5 years ago (in 50's)

    2) If you could pay off your mortgage would you, or are there tax advantages or other reasons why maintaining it makes sense in your situation? not applicable

    3) Do you have a monthly credit card balance or do you pay off the bill in full each month? I don't carry a balance but DH does and I make him have life insurance to cover it.

    IMHO its the inability to defer gratification that creates debt problems, regardless of age. The older someone is, the less likely they are to change, especially when a lifetime of poor choices adds up. The older I get, the less I need "things". My "job" in retirement is to teach the next generation to plan for their futures.

    ReplyDelete
    Replies
    1. Instant gratification is a major driver of our economy, and a major cause of financial ruin.

      Carrying life insurance to cover a credit card debt: interesting idea!

      Delete
  13. Great post! Finances & debt are one of the places I struggle, even while retired. I do carry a mortgage (partially because I helped finance homes for two children in California; home prices here are high, although some other expenses are not bad.) I use my Social Security check to pay the mortgage (I can live frugally on my other retirement income) and recently re-fi'd to pull the rate down and pay off more principal.

    My bigger issue is the everyday plan and the biggest challenge I have is keeping a savings account in place; I usually (but not always) pay off the credit card each month. I use the 0% interest when ever possible to purchase needed appliances (a washer & refrigerator died within the past year) but it seems that money in a savings account is not a permanent item.

    I never thought starting that particular habit would be such a big deal; I've put a couple of processes in place to help & it is getting better, but I really appreciate it when you run these posts because it reminds me of this particular goal.

    SOMEDAY if I get good enough at basic money management, I'd like to try to cards that give reward points. The current card (from my credit union) gives me a rebate in cash back at the end of the year.

    pam

    ReplyDelete
    Replies
    1. Pam, I like the cash back instead of points too so I am not tempted to buy something I really don't need (maybe want, but not need). My membership in Costco is more than covered by the cash back on the AMEX card. Our primary card gives me back close to $500 a year which goes right to the next month's bill.

      I have a retirement account, which is a savings plan. But, the typical savings accounts that we all grew up wanting pay such an absurdly low rate of return, I would guess they don't even exist anymore.

      Delete
  14. I will retire soon + will have a mortgage. I have had rental properties for many years and now with substantial equity. However IRS tax rules keep me tied to properties, lest I pay thousands in taxes. Selling my current residence will cost me 50k in taxes, after the exclusion. (Sales of rental properties could create double or triple tax hit.) It will be done at some point + money remaining used to pay down mortgage on some property. Rentals generate income so mortgages are less an issue.

    No credit card debt though.

    ReplyDelete
    Replies
    1. Your situation is different from most of those noted above, so I really appreciate the explanation of the tax issues of your situation. Obviously you are doing well or you wouldn't have those tax ramifications. Still, giving any of it to the government unnecessarily is not encouraged!

      Delete
  15. We paid off our mortgage early last year, a full five years after I retired. While I don't regret it--it feels wonderful to have no debt at all--it wasn't really the best financial decision. So I don't fault folks that have run the numbers and decided to keep the mortgage in retirement.

    We paid it off in February of 2013--our interest rate was 2.875%. I knew that was cheap money but the market was hovering around all-time highs. So it felt like the right thing to take the money out of our nest egg (60% from stock funds and 40% from bond and cash funds to keep our allocation steady).

    Fast forward and the market has hit even higher highs now. That 60% that we took out of stock funds would have appreciated over 30% by now--far greater than the measly 2.857% we saved!

    Of course hindsight is 20-20 and it could have gone the other way. But it's not always a bad decision to have a mortgage in retirement. If you can deploy that cash in a more advantageous way, you might come out far ahead carrying a little mortgage debt.

    ReplyDelete
    Replies
    1. From someone as well versed in finances as you Syd, I encourage readers to pay extra attention to your words. Like everything else in retirement, one size does not fit all, especially in managing money, mortgages, and debt. We are all responsible for making a decision that fits us - not the common mold.

      Based on a recent post of yours, you didn't mention rentals! You and I can relate in our feelings on that subject.

      Delete
  16. I confess that I paid off our primary mortgage with inheritance from my parents. For a vacation home, I'm carrying a mortgage despite having cash-equivalents available to pay it off. At 3.75%, it seems better to put the money in stocks, though this carries risk, of course.

    ReplyDelete
    Replies
    1. See my above comment to Syd. In your situation you have looked at the risks and benefits and made a decision that seems logical and workable. Historically low mortgage interest rates do add a new wrinkle to the equation.

      Delete
  17. Bob, I commented early this morning, but it looks like my comment didn't get through, so thought I would try again. Great topic and important discussion.

    We have a modest mortgage that we are capable of paying off today. But, we have chosen to keep it for now. The interest rate is 3.2%. Our (fee-based) financial planner suggested this strategy, and I have to say that our portfolio is doing very well! At this point, our money is busy making us more money by staying invested. We also take advantage of the deduction on our income taxes.

    Eventually we plan to downsize and move to a warmer climate. At that point the mortgage will disappear. Life circumstances are keeping us in the area for now, so this strategy seems to be the best one for right now.

    We have no credit card debt; we pay off the balance in full monthly. We have one of the American Express cards that gives us cash back of 6% on groceries, 3% on gas, and 1% on everything else. I simply apply it to the balance for the following month. Of course they want you to use the "cash" to buy things they are selling. I'm not tempted by this and love knowing I'm getting a big break on my grocery bill!

    I had a brief experience in my early 20's with my first credit card that taught me an important lesson. I was shocked to see the interest that was piling up as I continued to buy stuff. I was a struggling young adult fresh out of college in a modest paying job. Took me several months to pay off the bill, but it made quite an impact on me.

    ReplyDelete
    Replies
    1. Yes, there were a handful of comments from first thing this morning that vanished in the Internet fog. Thanks so much for trying again!

      Credit can often teach us a harsh lesson can't it. I don't have the figure but I wonder what the average credit card debt is for people in their 20's and 30's.

      My advisor told me last week that my portfolio is growing faster than the withdrawal rate Betty and I have set for the last two years. That is always good news.

      That is a good deal on the AMEX card. Does it have an annual fee?


      Delete
    2. Yes, there is an annual $75 fee on the AMEX Blue cash preferred card. Because this is the card we use to charge (almost) everything, it is easy to get get back more than the annual fee.

      Delete
  18. This is an interesting topic. I am just now entering retirement (will get my last paycheck in December). Because I have always been a small spender and big saver, figuring out how to handle both savings and debt in retirement is an issue for me. I paid off my mortgage several years ago. I had planned to take a home equity loan for the first 10 years of my retirement to help finance an addition on my house, but that didn't work out because the bank was alarmed by my impending retirement (despite an 800+ FICO score). So I am spending a bit more of my savings up front and lowering my monthly expenses for those first 10 years.
    I use my credit card all the time for purchases (I am another one who loves racking up those cash-back rewards points), but I only use credit cards without annual fees and always pay off the bill each month.
    As an aside, I wonder what kinds of cars people are driving that cost $45K and keep going up in price. I recently bought a brand new Toyota Prius for about half that price (paying cash, which I had saved at the rate of about $300 per month for the past 5 years) and was struck by the fact that my last three cars, brand new 1991, 2003 and 2014 Toyotas, were all pretty much identical in price -- despite the fact that each car was bigger and fancier than the last.
    -Jean

    ReplyDelete
    Replies
    1. I can't remember the last time I bought a new car. The 30% depreciation the second it is driven off the lot has always stopped me. With autos built so much better today there is very little risk that a well maintained car can't go well over 150,000 miles and last a dozen or more years.

      I have a home equity loan that I did use for some major home improvements, plus I wanted the safety of having an emergency source of cash if it was ever needed. Our rule is that the home equity loan can only be used for something that adds permanently to the value of the home and it must be paid back in 12 months. Since we own our house outright, all permanent improvements only add to the 100% equity we have now.

      Delete
  19. We paid our mortgage off in 15 years (we have been in our home now for 30 years) by making additional payments each month. We do not have any credit card debt and, while we do use credit cards, pay them off in full each month. My husband just retired in June and we are in a good place.
    d.r.

    ReplyDelete
  20. Paid off our home while in our 40's. Now own 2 houses,no mortgages,one is a rental generating income.One credit card ,paid off monthly, and it accrues points we use for travel. No other debts.Luckily we went to some money management seminars early on that helped us see the light.I can't imagine why some of my friends take out a 20-30 year mortgage at age 50 or even 60?????

    Moving to the mountains has incurred some extra expenses like gas to go visit family in the valley every month, or every two weeks! (I miss them!) and the grocery store is 15 miles away-- more gas to get there but I save money because I NEVER make "quick grocery runs" anymore.Once a week only.

    I think that money management is simpler than some financial planners make it out to be!

    Oh, we also keep our cars FOREVER, as you can guess.Both of us driving 11 year old vehicles. No new cars in the immediate future.Hoping to get at least 200,000 outta my Highlander!

    Still, only 7 months into retirement, I do have moments of money worries..natural I guess... ??

    ReplyDelete
    Replies
    1. You and Ken are another couple who has made a major lifestyle change which comes with necessary added expenses. I hope your rental in the Valley continues to be a positive for you and you don't have to rush back to deal with a major problem or two!

      I agree that money management is really much simpler than some would want you to believe: spend less than you bring in, deal in needs before wants, and surround yourself with quality stuff that will last forever with proper care.

      Delete
  21. Another good reason to use a credit card that no one mentioned: For large purchases and travel you get great benefits..I get FREE travel insurance with our Chase card.I also DOUBLE the warranty on purchased items like the refrig . and stove we just bought for our mt. house.I like that!

    ReplyDelete
    Replies
    1. If you ever rent a car while on vacation, the benefit of secondary insurance provided by some credit cards is a tremendous saver, too. With rental companies charging around $18 a day for protection, it feels really good to say, "No thanks. I'm covered."

      Delete
    2. You are covered anyway Bob, via your primary liability policy, which transfers with you when you rent a car. There is only one small coverage that doesn't transfer, called Loss of Use. In the unlikely event you have an accident that results in the rental car being out of commission in order for repairs to be made, you might possibly be on the hook for the lost rental fees, perhaps $50 a day for the duration of the repairs. Small and unlikely risk since your insurance company would go to battle for you. (Creds: career spent in the insurance industry)

      Delete
  22. No mortgage, no debt, put everything possible on Amex and pay off monthly for hefty cash back. It has been 50 years since we carried a balance on a credit card. In our early 20's we borrowed $100 from the bank and paid it back in installments (they must have been small!) just to establish some sort of credit rating. Interestingly we got a letter from AMEX last spring that indicated our FICA score. It said it was reduced to 804 because we have no recent history of installment loans. Have no idea what it was before but I am not too worried about that score. We have planned carefully all our lives, but we have also been lucky in that we have had no major health or job problems. Not everyone is as fortunate and we are so grateful. As for long term care insurance, we bought it 10 years ago but wish we had not. Now we hate to drop it.

    ReplyDelete
    Replies
    1. Several of the comments so far, including yours, have prompted me to check into the AMEX cards that have such a hefty cash back. As Carole noted above, even with a annual fee, it is not difficult to still do well.

      Delete
  23. Bob, Good post. To answer your questions:

    1. Carry a mortgage? No. Paid the current house off within six months of purchasing it. Our prior two principal homes were all paid off early as well; not as fast as the current one, but still early.

    2. Credit care balance? Always paid in full each month. I have never paid a penny in interest and hope I never have to, at least on cards.

    I am thinking about taking out a home equity loan, though, to add to my investments. It will be only be about 20% of the house's value, and the low interest rates have my interest. I recently used a substantial amount of cash to help a family member that should be paid off over the next five years, and this will HEL would give me a better comfort level around my cash position.

    Chuck

    ReplyDelete
    Replies
    1. I pay 3.25% on my HEL account. It is hard to beat that interest rate and I like the available cushion should I need it.

      Delete
  24. No mortgage, no debt and happy to stay that way. Occasionally use a home equity loan to make repairs to home but always pay it off as soon as possible.

    ReplyDelete
  25. We paid off our mortgage 22 years ago. We pay all credit card balances every month, and use the cash back bonus money for fun things such as eating out.

    ReplyDelete
    Replies
    1. Based on the comments I just signed up for a new credit card today that is much more generous in bonus back money than I have been using. I won't cancel the old card but it will go into the drawer to be used only once a year to keep it alive.

      Delete
    2. Just a thought. Does Betty have a credit card in her own name? I was surprised when I was informed by my bank that my credit was lower because I have no revolving credit in my name. "Joint" no longer counts in credit cards.???

      Delete
    3. No, she does not. It may be something we should consider.

      Delete
  26. We have a 30-year mortgage that we're paying off at the 15-year rate. We could pay it off now but our interest rate is 4.75% and our investment accounts are making twice that. When and if the situation changes we'll change as well.

    We put as much as we can on our primary credit card and pay it off every month. We've been to Europe and South America on the points we've earned, and will go to eastern Europe again next spring. We have two other credit cards connected to Alaska Airlines. We pay $75 a year for each, but they come with a companion fare feature - first person pays coach, other person pays $120. Since we're still traveling to the east coast and to Hawaii most years, this is a saver for us.

    I drive a 1998 Accord and my husband drives a 2005 Prius. When they start needing more care we'll replace them with late model used cars of a similar nature.



    ReplyDelete
    Replies
    1. Boy, you really know how to work those points. We will use points to fly back east next year for a family reunion for Betty.

      Delete
  27. We just moved and took out a new 30 yr mortgage under 5%. We could pay it off, but it would take about 25% of our investments. Our payment is relatively low. Credit cards- we pay off every month. Most months we charge very little.
    Interesting about cars. We just bought our first brand new car in 28 years this summer. This went against everything I've preached for all these years, but the price difference between a new car and a year or two old one was surprisingly small. So we bought new. We do have a car payment, but, like the mortgage, we could pay it off if necessary.
    So far, we have not had to begin to draw on my IRA. I plan to put that off as long as possible. I'll turn 62 next year, and I will start Social Security then.
    I feel very blessed to be in the position I'm in with little to no money worries.
    Add me to the list of people who are happy you are back blogging!
    Jeff in OK

    ReplyDelete
    Replies
    1. Thanks for the vote of confidence, Jeff!

      You make a good point: the price difference between new and used has narrowed in many cases. With a new car you do get a several year long warranty and other benefits. While that depreciation issue is still there, as used cars become more expensive, then maybe my thinking needs to adjust, too.

      Delete
  28. We paid off our home 28 years ago and never looked back. The lack of a house payment has allowed us to save for 2 college eductaions, take some nice vacation, and save for a comfortable retirement.

    We have 3 credit cards; two at specifice grocery store that give special discounts for purchase made at their stores ( one is in my wife's name only to build her credit history), and one that has good reward points for other purchases. We alway pay off the balance the money has to be in the bank before we charge anything.

    We have always bought used cars and keep them until they become too maintenece heavy. We are 58 and 57. My wife is already retired and I plan on pulling the trigger at 62.

    ReplyDelete
    Replies
    1. Sound like the perfect script for a satisfying retirement for the both of you. This is the second comment that has mentioned a credit card in the wife's name - something Betty and I should look into.

      Delete
  29. I recently paid off a small mortgage I took out when I moved and pay all credit cards in full, monthly. I won't judge someone who carries a mortgage that will be paid off before they're , say, 70 and is reasonable for their income or someone who carries cc debt due to medical expenses. I'm VERY fortunate to have excellent insurance, free from my prior employer. iIt will even reimburse Medicare Pt B costs.

    One year I racked up $12,000 in dental & eye bills, all uninsured. I told people I can't buy anything, because I'm buying body parts:) Yeh, that wasn't fun.

    ReplyDelete
    Replies
    1. Buying body parts...oh how true!

      Delete
    2. I wonder if seniors who carry unnecessary debt do so to avoid the complications of aging, to fill time shopping; or because they don't want to face the fact that their income (financial destiny) is now fixed. I'm great at avoidance behavior, which never ends well!, fortunately, it didn't extend to finances.

      Delete
  30. Cari in North TexasThu Sep 25, 08:57:00 PM MST

    I'm a little late to this party, but it's been a busy week :-) I feel blessed that I have my military pension as a guaranteed income, so my financial and health insurance needs are not as urgent or dire as some others in my age range (turn 62 next month).

    I do have a mortgage. I just refinanced to get a 4.1% interest rate and to lower the term to 20 years. I feel comfortable with that at this point because of the tax deductions I'm getting. If I could pay it off, I guess I would, but my payment is quite low so it's not a big burden at this point.

    I have one credit card that does give me 1-5% cash back depending on their specified categories each quarter. I pay as many bills as I can with the card, then pay it off every month. It gives me peace of mind that the bills are getting paid, and it earns me cash back, that I usually use for vacations or entertainment.

    Other than my mortgage, I have no debt. My car has been paid off for quite some time, and I pay cash for everything I buy (ok, I put it on my credit card but it gets paid off each month).

    ReplyDelete
    Replies
    1. No one is ever late to this party, Cari :-) !!!

      You have a good grasp of your finances and obviously are comfortable with where you stand. That is a blessing. Good for you.

      Delete
  31. I am 64 and my husband is 81. We are both in fair to poor health. He has diabetes and I have secondary progressive MS. Luckily, we have halfway decent pensions and Social Security, and we have good investments.

    We do have a mortgage, but no car debt. no credit card debt. Because of my MS, I don't shop in stores like i used to, so our Barclay's LLBean credit card gets used extensively for online shopping, my husband's grocery shopping for us, etc. Since we buy most of our clothes at LL Bean, the cash reward certificates we get from the card are used to pay for clothes, and I even bought a bed several years ago from them. We pay it off each month. It's our only CC.

    Our biggest expenses are health-related. I have been on SS disability since i took early retirement at 58, and that required me to be on Medicare two years after that. All in all, I wish I could have kept working at my very decent public school librarian salary and absolutely wonderful health insurance. Now, it is a hassle to deal with all of the Medicare and supplemental insurance issues and outrageous medication costs. We both take numerous prescription meds each day. Add in two back surgeries, one hip replacement surgery, and two brief hospital stays for heart stent issues, and we have huge out-of-pocket medical expenses to add to our 1040 long form each tax season.

    Aside from the mortgage, however, we are ailing but debt free!!

    ReplyDelete
    Replies
    1. I'm glad to learn you are debt free but very sorry about your health struggles. Thanks for taking the time to detail your situation.

      Delete
  32. I 'published' and my comment vanished, but I don't see it above. I'm trying again. My apologies if I have entered, basically, the same comment twice.
    I have about $1800 in student loans left for my children's education and a $3500 loan from my life insurance policy. That's it for debt. I have a 2000 Camry that I believe I will have to replace in the next couple of years. I'd like to buy second hand, but fear getting someone's lemon.
    I don't have a mortgage (no benefit for me to have one). However my property taxes have gone up horribly (the recent - makes no sense- property appraisal) will increase my property taxes by almost 17%. My property taxes are my biggest expense and gripe. I want to move within a couple of years, but just don't know where I want to move to. My worst stumbling block to enacting big decisions is the fear I will make the wrong choice - that I will regret what I did and won't be able to fully recover financially or personally. It has left me at a stand still in some areas of my life. For example, my plan was to sell my house and move no later than this year, but I haven't even started.
    I looked into long term life insurance some years ago and just as I was getting ready to send the paperwork in, an increase in premiums, of over 50% was announced. I contacted the insurance rep and asked what happened if there was a future increase that was beyond my capacity to pay. He said I would have the same options as everyone else; I could take a reduced benefit, if I could afford it, or drop the insurance, but no money would be returned for any of the years I had paid. He reassured me tho, that a premium could not be individually increased, that it had to be a group of people. This did not reassure me. I figured I was in a large group of Baby boomers, 2/3s of whom would all be needing long term care. I felt large premium increases would be in my future and at some point I would not be able to afford them and would end up with no benefits and all that money 'dissappeared'. So I am hoping to 'age in place', and am trying to make healthier choices.
    I just found your blog and really like it - thanks!
    Elaine

    ReplyDelete
    Replies
    1. Hi, Elaine. I'm sorry your first comment vanished. That happens occasionally but, luckily, not very often.

      Thank you for the description of your situation. I am luckier than you regarding property taxes. Ours went down a bit because of the housing recession but now have started back up again, but only about 6% a year. Now that I am 65 I can apply for a freeze on part of the taxes for three years.

      Your experience with long term insurance mirrors what others have said, and why Betty and I passed on it. It no longer seems like a viable option.

      Welcome to the blog!

      Delete
  33. I retired at 64 and started working 6 weeks later due to boredom. I also very much missed the association with people and the feeling of being useful and productive. I'm almost 70 and I like the extra money to live better, donate to charity, and to travel. We haven't had any debt in approx. 20 years because we live within our means. My next door neighbors (in their mid-sixties) just lost their $450K home because they didn't.

    I don't agree with the buying a used car theory if you pay cash. We purchased a new 2000 Honda $21K. We've had it for almost 15 years with little repair costs beyond routine maintenance. That's ~$1400/yr to drive a nice reliable car. I'm not sure that people account for the fact that a 3 yr-old car will normally last 3 yrs. less than a new one. I once bought used from a dealer and in 5 years probably spent the difference of a new one in repairs.

    ReplyDelete
    Replies
    1. I can't think of many things sadder than the situation your neighbor found himself in. Losing your home is a body blow that is hard to recover from.

      Your point about a new car is a valid one. However, with new automobile costs averaging over $30,000 for many that is just too high a hurdle to jump. Cars manufactured in the last ten years are made well enough that a used car of recent vintage should last just as long as a new one with decent care.

      Recently we replaced a 2008 Hyundai (bought in 2009) with a 2011 Honda CR-V. I paid about $8,000 less than a new one which will pay for a lot of maintenance and upkeep for the 8-10 years I hope to keep it. Honda makes a good vehicle, as you know, so we are comfortable with a 3 year old one.

      Delete
    2. But don't forget that when you sell your 2011 it will be worth proportionally less than a 2014.
      I would buy used if I knew the car's history. Many years ago I purchased a Honda Accord at a very good price from a private party. I was devastated when it got totalled 3 or so years later but the insurance company reimbursed me more than I paid for it.

      Delete
    3. p.s. I'm now in love with my 2010 Subaru Outback! 2014's are even better!.

      Delete
    4. I usually keep cars long enough that by the time I trade it in it doesn't even show up in a Blue Book. Most dealers will give you $500-$1,000 for the junk value. That 3 year difference wouldn't amount to enough to justify the extra $8,000 up front.

      Delete
  34. Home paid off since 1987 when 2 children were very small and one was on the way. I was able at that point to stay home with the children until all were in school which I am very thankful for. Went back to work in 94 at same employment I had been employed by previously with the thought in mind of building up my retirement accounts and putting children thru college. We took out a home equity loan when oldest was in high school to have that to fall back on as those college years began to roll around. It was used and paid off as needed until the 3rd child finished his college years and is now still in place but considering letting it drop when 10 year period is over in a few months. My husband turned in his notice last week after nearly 30 years that the last day of this year will be his final day for that employee. So happy for him. He plans to look for part time work after a year or two of "catching up" with fishing, honey dos, and helping children with their projects. I will work on 2 more years due to how our retirement plan is set down thru my employment. Credit cards, if used, is paid off before month is over. Maybe should check into the rewards programs of same a little closer. Our discussion at this point is whether or not to withdraw one of our CD's at the barest of bare interest rate to pay down his new "retirement truck" to where we will be able to pay it completely off before the new year and have his retirement start out completely debt free for us. Especially since his social security will not begin until at least the year 2016. (He will have a decent pension payment starting in 2015.) Any thoughts on that? We will still have some invested in CD's to fall back on if needed for emergencies.

    ReplyDelete
    Replies
    1. How low is the interest? If you bought them in the last several years you are losing money to inflation, and to add insult to injury you pay taxes on the pittance, too.

      Personally, I'd cash in a super low rate CD and pay down the truck. The interest rate you are paying on the truck loan probably dwarfs the interest you are making on the CD.

      Caution: I am not a financial advisor...above is what I would do.

      Delete
  35. I am of the opinion that it is better to pay off your mortgage before retirement. It keeps you free from debt and you will have to carry the load of it through your retirement period. But there are people who say that paying off your mortgage before retirement is not a good option. They believe that it is better to have some cash at hand in case of any possible emergency. But I don’t think so, I want to repay all my mortgages before I retire so that I can have a relaxed retirement. This article speaks about the same, have a look at it http://www.northwoodmortgage.com/mortage-questions/pay-mortgage-retirement/

    ReplyDelete
  36. 1) Do you carry a mortgage? If so, does it ever worry you?

    Yes, I have a sizeable mortgage, since I am able to make the mortgage the payments, it does not worry me at this time.




    2) If you could pay off your mortgage would you, or are there tax advantages or other reasons why maintaining it makes sense in your situation?

    I hope to sell my current home within the next year and will look to buy something smaller and less expensive. I have often considered not having a mortgage, but wonder if that is a wise investment considering the housing market crash in 2008 and the slow recovery.




    3) Do you have a monthly credit card balance or do you pay off the bill in full each month?

    Outside of my mortgage, I do not have any other debt. My credit cards are paid in full each month.

    ReplyDelete
    Replies
    1. Thanks for your recap. You have an important decision coming up regarding the downsizing of your living space and mortgage.

      I'm certainly not a financial expert, but if you think there is a chance of another drop in housing prices in our future, then not having a mortgage would seem wise. Being upside down with more owed and equity would scare the devil out of me.

      Not owning another home is also something my wife and I have considered. At some point we will move into a retirement community. If we move from our present house into a smaller home before that "final" move, we have discussed renting rather than owning so our equity from our present house is not locked up in a condo-size place that may be tough to sell when it is time.

      Delete
  37. Personally I am comfortable having a mortgage in retirement. More finance articles are mentioning It may not be the best use of your cash to pay it off, depending on the interest rate of course. And state incentives vary widely also.
    Bob you had a lot of comments on this post! I was hoping to hear more comments from the more typical side, but your readers seem to have planned better than many...

    ReplyDelete
    Replies
    1. I think this one post has generated more comments than any other in over 4 years of blogging. You may be right: those who comment seem to have handled/planned for things better than many. But, I suspect that those with major issues in this area are hesitant to discuss their problems publicly, so they are out there but not represented as often in the comments.

      Delete

Inappropriate comments will be deleted