Eliminating Debt in Retirement

The Center for Retirement Research at Boston College reports that a “rapidly growing” number of households accumulate debt in retirement, a trend that began in the 1990s and has accelerated in the past decade.  The analysis concludes that most seniors, as a result, are at high risk of being financially impaired.

The biggest reason for the gap between anticipated income and expenses is the escalating costs of goods and services in the post-pandemic years.  A recent survey found that 87% of retirees believe that inflation is a big threat to their financial security in retirement, according to CNBC.com.

“Inflation is definitely sitting on people’s minds in a way it hasn’t in a long time,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight. “It’s their top investment concern, and it’s also their top financial fear, this idea of increasing everyday prices.”

Indeed, a 2023 research report from Cerulli Associates found that the biggest worry for 58% of Americans is outliving their assets in retirement.

Tips for Tackling Retirement Debt

There are some simple strategies that seniors should consider implementing while retired.  Please find below a few tips from Money magazine:

Address Highest Interest Rates First

One smart approach to reducing debt is to examine each account’s interest rate and pay off the balances with the highest rates first.   In this manner, the burden of aggregated monthly bills is lowered.

Downsize or Relocate

The Center for Retirement Research has identified at-risk seniors who simply own — or owe — more “house” than they need.  It might be time to move to a smaller home or even to a lower-cost city to receive some debt relief.

Access Home Equity

It is not ideal to establish a new loan when already in debt, but it is prudent to eliminate high-interest debt (for example from credit cards) with a lower-interest home equity line or reverse mortgage.  Mortgage rates are not nearly as appealing as they were a few years ago but they still are preferable to credit card rates.

Consider Federal Benefits

Some retirees may qualify for federal programs that are specifically designed to help seniors with routine expenses related to food, housing and transportation.  Please go to www.benefitscheckup.org for more information.

Be Smart About Available Assets

Another proven strategy for reducing debt in retirement is to take an inventory of available assets and liquidating the ones in a measured not panic-stricken manner that are no longer needed or serving their original purpose.

For example, a life insurance policy may have hidden value to unlock and generate much-needed cash by being sold to a licensed entity in the highly regulated life settlement marketplace (see more on life settlements below).  Instead, many seniors make the mistake of just lapsing or surrendering their life insurance policy for its “cash surrender value” as provided by the insurance company, especially during times of economic pressure or uncertainty.

The 2023 Life Insurers Fact Book, published by the American Council of Life Insurers, reports that the “voluntary termination rate” of individual life insurance policies reached 6.2% last year, a sharp increase from the year prior and likely a reflection of intense inflationary pressures on consumers.  It is a disturbing trend as lapsing or surrendering a life insurance policy is rarely in a consumer’s best interests.  Even the ACLI itself advises that its members should “seek to minimize the lapsing of policies.”

Selling a Life Insurance Policy

A life settlement is a transaction where the licensed third party, called a life settlement provider, provides compensation to a qualified senior policy owner who seeks to sell his unneeded or unwanted life insurance policy for an amount higher than the policy’s cash surrender value but lower than the life insurance policy’s face value or death benefit.  The life settlement provider assumes payment of future premiums, thereby eliminating the financial burden from the retiree, and collects the death benefit when the insured passes away.

Life insurance is legally considered personal property and can therefore be bought and sold just like any other owned asset.  The funds received from a life settlement can be used in any manner whatsoever, including to offset mounting medical bills, long-term care costs or simply as a source of cash to eradicate any debt in retirement.

The best way to receive a fair market price for a life insurance policy in the life settlement market is to contact an experienced life settlement broker such as Welcome Funds.  We are required per applicable law to represent the policy owner’s best interests throughout the entire transactional process.

For more information about Welcome Funds or to receive a free, no-obligation life insurance policy appraisal, please call 1-877-227-4484 or visit www.welcomefunds.com.