Most Americans look forward to retirement as the time when they can relax a bit financially. By the time you stop working, the hope is that your house is paid off, your debt is minimal and your monthly expenses decrease. Unfortunately, for a growing share of Americans, that model no longer reflects reality.
Today’s retirees are increasingly entering retirement with mortgages, credit card balances and auto loans still in place. According to the Federal Reserve’s Survey of Consumer Finances, the share of households headed by someone aged 65 to 74 carrying debt has more than doubled since the early 1990s, rising from roughly 30% to over 60% in recent surveys.
Meanwhile, the Federal Reserve Bank of New York’s Household Debt and Credit Report shows total household debt hitting record levels nationally, with auto loan and credit card balances growing fastest, trends that don’t stop at retirement age.
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Mortgage trends reinforce the same pattern. The Urban Institute notes that more Americans are carrying mortgage debt into retirement than ever before, driven by later home buying, refinancing resets and rising home prices.
When living on a fixed income, as so many retirees are, there’s a narrow window for financial shocks. This is particularly true when retirees are still carrying debt. A market pullback, a rent increase, a medical bill, or even a major appliance replacement can force retirees into higher withdrawals or additional borrowing, and that’s a recipe for long-term financial risk.
The good news is that this cycle is not inevitable. Here are five practical ways to reduce the odds of retiring broke, even in a high-debt environment.
Want to earn a great return on your investments? Pay down your high-interest credit card debt.
While you might earn an average of 10% annually by investing in index funds over the long run, paying off high-interest debt provides a guaranteed return that’s typically north of 20%. Eliminating a 22% credit card APR effectively produces a risk-free 22% gain, and that’s a return you’re just not going to see in regulated investment markets.
For this reason, it can make sense to prioritize eliminating credit cards, personal loans and high-rate auto loans before maximizing discretionary investing. In addition to earning a high rate of return, it improves future cash flow resilience and lowers required retirement income.
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Reputable investment houses like Fidelity suggest that most retirees only spend 55% to 80% of their working-era income after they retire. This can often be true, especially when homes are paid off. But that assumption frequently fails when mortgages, insurance, healthcare and property taxes persist.
To avoid getting caught in this trap, it’s wise to build projections using current fixed expenses, not idealized assumptions. If your plan only works after a hypothetical mortgage payoff or lifestyle cut that may never happen, the plan itself needs adjustment now, not later.
Rather than vaguely planning to “pay things down eventually,” create a clear payoff timeline tied to your retirement date. This may require you to:
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Accelerate principal payments on mortgages
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Redirect bonuses or tax refunds toward debt
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Downsize earlier than planned
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Refinance strategically while still employed and creditworthy
According to Zillow housing data, home prices and mortgage balances have risen dramatically over the past decade, increasing the risk of entering retirement with oversized housing costs. If you fall into this category, or if you carry any debt at all, make a plan to address it so it’s not a burden on your retirement income.
Many retirees look wealthy on paper but remain cash-poor. Home equity, illiquid investments and retirement accounts with withdrawal penalties can limit flexibility when emergencies arise, as they often do in retirement.
Maintaining a healthy emergency reserve, even into retirement, reduces the odds of turning to high-interest credit during market downturns or unexpected expenses. If you have a $1 million net worth but $950,000 of it comes in the form of your primary residence, for example, you’re not going to have much flexibility in terms of managing your retirement cash flow.
Liquidity is a form of risk management, not inefficiency.
Traditional retirement withdrawal strategies often prioritize tax minimization. While taxes matter, cash flow stability matters more when debt exists.
Fixed-loan payments amplify sequence-of-returns risk. If your portfolio suffers large losses early in your retirement, mandatory withdrawals can permanently impair portfolio longevity.
For this reason, investment research firm Morningstar suggests it can make sense to adjust your withdrawal rates in a manner commensurate with your portfolio returns. In other words, when your portfolio drops in value, you should reduce your withdrawals that year. You can always boost them again when returns are better in future years.
Rising debt among older Americans has quietly changed the rules regarding retirement withdrawal strategies. Ignoring that reality exposes retirees to unnecessary financial stress and longevity risk.
But breaking the cycle doesn’t require extreme frugality or perfect market timing. It requires realistic assumptions, disciplined debt reduction, strong liquidity planning and conservative withdrawal strategy design. The earlier those adjustments begin, the more resilient your retirement can become, regardless of market conditions.
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This article originally appeared on GOBankingRates.com: More Americans Are Retiring Broke — Break the Cycle Now With These Money Moves
