I will soon be 65, I have $320,000 in retirement savings and a paid off house, but I have $46,000 in debt. Should I withdraw more money from my investments?

I will be 65 in a few months. I retired at 63 and I am currently receiving Social Security survivor benefits (from my late husband). I plan to switch to my social security at 70. I get about $31,000 a year in social security. I also withdraw $600 per month from my retirement account.

I calculated all my monthly expenses (to include what my Health care costs will be 65) and subtract that from my monthly Social Security payments and the $600 I get each month from my retirement account and I’m left with about $500.

I have about $320,000 in a retirement account (investments) and my house is paid off and valued at about $250,000.

The downside is that I have over $46,000 in debt (credit card, car and home equity to lend).

so i need advice to how to manage this debt to repay it. I’m tempted to take more out of my retirement account each month and make double payments on my debt – rather than taking out a big chunk all at once.

Any advice is so appreciated.

Thank you in advance for this consideration.

See: We’re 56, have $400,000 in debt, can save $50,000 a year and just want to retire – what should we do?

Dear reader,

First, there are options for paying off your debt, and taking a lump sum from your retirement accounts should probably be the very last of them.

Start by compiling a list of all your debts, the exact balances, the interest rates they charge and if there are any other stipulations (like a deadline to pay them off before interest rates go up) . Once you have that, you can see where your debt burden is and work out a repayment plan.

There is no one-size-fits-all approach to withdrawing more from your retirement accounts to pay off your debts. As with most personal finance issues, it all depends on individual circumstances. That said, taking a lump sum from your investments would likely be detrimental to your future security in retirement, as your portfolio returns will be based on a smaller balance. You need this money to last the rest of your life.

Whether or not you should withdraw more money each month is another story. This decision, however, should be based on a few factors, including your repayment plan (how quickly are you trying to pay off that debt, or how quickly are you need to pay off that debt?) and how much more money you plan to take out each month. You don’t want to shrink your account too quickly – as I said, you need this money for the rest of your life – but you can have some leeway for withdrawals.

If you’re only withdrawing $600 from your retirement account each month, that’s a withdrawal rate of just over 2%, which isn’t bad. A long-standing guideline was the 4% rule. Under this rule, retirees could supposedly withdraw 4% of their retirement savings each year to pay for living expenses without running out of money before they die. This rule has been hotly contested in recent years, with some experts saying the rate is too high.

Investment firm Morningstar said in analysis published in November that retirees would be better off with a rate as low as 3.3%, assuming their portfolios were balances and withdrawals were fixed over the next 30 years. years. With these variables, retirees would have a 90% probability of not running out of retirement savings.

Don’t miss: I am 63 years old, I just got divorced and I have a debt of $130,000. How am I going to retire?

If you only withdraw between 2 and 2.5% of your retirement savings each year, you have a little wiggle room to withdraw extra money to pay off your debts. For example, a 3% withdrawal would get you $200 more to settle on your debt. And when you pay off your debts, you could be back to a withdrawal rate of around 2% – maybe even less if you’re able and comfortable!

I just wanted to briefly mention a few other things to keep in mind when it comes to paying off debt, whether you’re retired or not.

There are a few strategies for repaying debts. One type is the “snowball” method, where consumers repay debt in order of balances (i.e., the higher the balance, the higher the priority). As each balance is squared, the money used for that debt is applied to the next highest balance. Credit cards usually have the highest interest rates and home equity loans are usually low, but you’ll know where everything stands when you make a list of your debts.

Read the MarketWatch column “Retirement Hacks” for practical advice for your own retirement savings journey

There is also the “avalanche” method, which instead prioritizes debts according to interest rates. In this case, you would pay the minimum amount on all other loans and allocate the extra money you have available for debt repayment to the balances with the highest interest rate.

Zero rate credit cards can be an extremely useful tool, if you use them correctly. These cards have restrictions. For example, the zero rate offer is only available for a limited time, ie. 15, 18 or 24 months – before a high interest rate kicks in. There may also be a charge for transferring your credit card balance from another card. But if you can plan accordingly, work these charges into your repayment plan, and zap your debt within that time frame, you’ll save hundreds or even more on interest, paying off your consumer debt much, much faster.

Also, when you make extra payments to pay off a debt, call your lender and make sure the money is going towards the principal, which actually reduces your balance. And, just to be on the safe side, ask your lenders if there are any repercussions of paying off your debts faster… you don’t want to be hit with a penalty for doing something that’s good for you.

Have a question about your own retirement savings? Email us at [email protected]

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