6 Steps to a Debt-Free Retirement

Imagine a life with no financial obligations to anyone. There’s a unique comfort in paying off all your debts before you retire. These six steps will help you achieve a debt-free retirement.

This article was originally published on US News & World Report and republished here with permission. Head over to the “Featured on” page for a list of other RBD articles on US New & World Report and featured around the web. 

Imagine a life free of obligations to anyone. Sounds great, right? That may never come true when it comes to family, friends, and work life. But you can choose to be free of obligations to banks and lenders by being debt-free.

The temptation to borrow is ever-present in our society. Some retirees choose to be completely debt-free as they enter their golden years.

There’s a unique comfort in paying off all your debts before you retire. Debt can cause anxiety that detracts from happiness. In retirement, you want to optimize happiness and your limited income, and being debt-free can help you get there.

Here are six steps you can take to ensure a debt-free retirement:

Swear off consumer debt

Depending on your income and lifestyle, you may carry consumer debt as you are saving for retirement. Consumer debt is any outstanding money you owe due to acquiring goods or services. Credit card overuse is the easiest way to go into debt. But consumer debt can also come in the form of personal loans or money owed to friends or family.

As interest accrues on debt it works against your potential to build wealth. Worse yet, these debts hamper your cash flow, leaving less money to invest each month. Those with debt also require more savings to cover monthly expenses, which could make it necessary to delay your retirement date.

Aim to pay off any high-interest consumer debt as quickly as possible and swear off irresponsible credit use in the future.

Read more: That Clutter In Your Home Used To Be Money

Eliminate car payments

Vehicle debt is a form a consumer debt that is widely used by car buyers. There’s nothing stopping you from entering retirement with a car payment, but it requires bigger withdrawals from savings or more cash flow to cover the payment. Lease payments are another type of monthly bill that those without vehicle debt don’t have to pay.

When planning for your retirement, consider your transportation needs well ahead of your exit date. Your family may no longer need two cars if you and your spouse don’t have to go to separate jobs at the same time. Some retirees choose to go without a car.

Public transportation, taxis and ride-share services such as Uber and Lyft are alternatives to owning a car. If you can eliminate car payments approaching retirement, you’ll strengthen your ability to save aggressively. Entering retirement without a car payment will help you preserve your retirement nest egg.

However, you may need to purchase another vehicle when your existing car becomes less reliable. Consider a used vehicle to save money, or buy a lower cost entry model with cash. Avoid the temptation of low interest rate loans.

Read more: Eliminate Car Payments From Your Life (And Never Go Back)

Pay off student loan debt

According to a survey by Sallie Mae, 14 percent of parents borrow money to pay for college costs for their children. With the increasing cost of higher education, many parents end up indebted from university tuition in the years nearing retirement.

The best strategy to avoid college tuition debt if you choose to fund your child’s education is to start saving early. A 529 college savings plan is a great place to start, but only 13 percent of families use them, according to Sallie Mae.

Research 529 plans to find the one that gives you the best investment options for your risk tolerance and tax advantages for your state. Look for a diverse selection of low-cost funds.

Another option is to forego borrowing altogether and require your child to accept the debt burden of college tuition. While this may seem unpalatable, the timeline for your retirement is more pressing and your child will have an entire working career to address the debt. You can always help your child later on, but prioritize your retirement over your child’s education.

If you insist on funding your child’s education with debt, create a payoff timeline that ends before your retirement date. A home equity loan may be a good option for lower rates, especially if you expect to downsize your home in retirement. That will enable you to pay off the debt when you downsize your home.

Read more: How Our Family Is Saving For College

Downsize, rent or live in a paid-off home

As part of a comprehensive retirement plan, housing needs should be at the forefront of planning. If you intend to pursue a debt-free retirement, your largest hurdle may be your mortgage. Staying in a paid-for home will keep your housing costs down. But not everyone is mortgage-free as they approach retirement.

Choosing to live in a debt-free house takes planning. One strategy is to downsize your home in retirement. You could also move to a location with a lower cost of living. Another option is renting. Renting allows you to live without a mortgage and has the added benefit of not having to deal with maintenance issues or large unexpected costs.

Read more: Is Moving Worth It To Achieve Financial Independence

Avoid medical debt

One in five working-age Americans with health insurance reports problems paying medical bills, according to a survey by the Kaiser Family Foundation. And more than half for those who are not insured find medical costs unaffordable.

Medical costs rise as you age. Adequate health insurance is an essential component of your retirement plan. If you retire before age 65, you’ll need to find an affordable but comprehensive health insurance policy that fits the needs of you and your family.

The next line of defense to avoid medical debt is to maintain a conservative emergency fund in a savings or money market account. Keep this money separate, and only utilize it in the event of an unexpected cost.

Refuse to lend money to family

A truly debt-free retirement means avoiding lending money, not just borrowing. Retirees with a healthy nest egg may be approached by friends or family members looking to borrow money in times of need or perhaps to invest in a business venture.

Lending to family members can cause tension, especially when one party doesn’t hold up to the bargain. This can lead to strained relationships, which are certainly not what you want in retirement.

If a close family member is financially distressed and needs help, consider gifting money instead of lending if you have the means. Make it clear it’s one-time assistance, you’re doing it out of love and you do not expect anything in return. Those truly in need will be grateful, and you’ll feel no animosity for an unpaid debt.

In the event someone close approaches you to invest in a business, choose equity deals over debt and treat the investment as highly speculative, only investing a small fraction of your net worth.

This article was originally published on US News & World Report and republished here with permission. Head over to the “Featured on” page for a list of other RBD articles on US New & World Report and featured around the web. 

Photo credit: Marie-Sophie Tékian via Unsplash

Favorite tools and investment services right now:

Sure Dividend — A reliable stock newsletter for DIY retirement investors. (review)

Fundrise — Simple real estate and venture capital investing for as little as $10. (review)

NewRetirement — Spreadsheets are insufficient. Get serious about planning for retirement. (review)

M1 Finance — A top online broker for long-term investors and dividend reinvestment. (review)

Comments Welcome!

This site uses Akismet to reduce spam. Learn how your comment data is processed.


  1. Some excellent tips you have here! I will mildly disagree with your car loan point – as I wrote on my blog recently there are some situations where a loan wouldn’t be so bad. However, for the average scenario, I’d say you’re right! I’m curious about your last point – lending money to family. I wonder if this happens a lot to FIRE enthusiasts. Maybe it happens a lot in general but there seems to be a lot of words devoted cautioning against lending to family. In any case, its great you put it out there because I’m sure the time will come and hopefully the caution will be remembered.

    1. HM,
      This wasn’t necessarily targeted to the FIRE community since it was meant for the US News audience first. I don’t know how often it occurs, but makes sense to me if you’re going to live debt free in retirement, it goes both ways. As for cars, most people are very content with loans. I was not.

  2. Blastmaster says:

    Regarding college borrowing. Our son chose to live at home and commute to a nearby State University. By cutting out the college “experience” but getting the education he will graduate this Spring with thousands in the bank and ZERO debt. Housing/Meal plans can double the cost and many are still paying for that Cheeseburger and Frat house memory 30 years later with interest. Because our son made wise financial decisions starting at age 18 he will start adult life with a huge leg up on his peers. He will move out after graduation instead of moving back into our basement!

    1. Congrats to your son Blastmaster. Education is more of what you make it rather than going wherever you choose with out regard to cost. Tom

    2. Blastmaster.
      Kudos to your son for making that responsible decision. I was way more interested in the experience than the education. And we paid for it. I don’t regret the experience because I do believe it was an important part of my education. However, I had the luxury of a paid for education. Not everybody does, and saving money by staying at home is a great way to do it.

  3. dividendgeek says:

    Valid points! Medical debt is especially dangerous!!

  4. TheRetirementManifesto says:

    You write for US News & World Report? Hmmm….seems I already knew that. Wink.

  5. Buy, Hold Long says:

    Very nice write up, one of the things I love is to be debt free. Not quite there but I will be one day. Looking forward to that day. Cheers

  6. zeejaythorne says:

    I’m so looking forward to ending my consumer debt. It feels like a much larger burden than my student loans even though the loans are substantially higher. Brains are funny sometimes.