I’m 65 soon, I have $320,000 in retirement savings and a paid house, but I’m $46,000 in debt – should I get more money from my investments?

I’ll be 65 in a couple of months. I retired at 63. and I am currently receiving bereavement benefits (from my late husband). I plan to switch to social security at age 70. I get about $31,000 a year in social security. I also take $600 every month from my retirement account.

I calculated all my monthly expenses (including what health care costs will be age 65) and deduct that from my monthly Social Security payments and the $600 I get every month from my retirement account, leaving me with about $500 left.

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

The bad news is that I have over $46,000 in debt (credit card, car and home equity loan).

So I need some advice on how to deal with this debt in order to pay it off. I’m tempted to take more out of my retirement account each month and make double payments on my debt rather than taking the bulk all at once.

Any advice is so appreciated.

Thank you in advance for this consideration.

See: We are 56 years old, $400,000 in debt, can save $50,000 a year, and just want to retire—what should we do?

Dear reader,

First, you have options to pay off your debt, and getting a lump sum from your retirement accounts should probably be the very last of them.

Start by making a list of all your debts, the exact balance, the interest rates they charge, and any other conditions (such as when they are due before interest rates rise). Once you have this, you will be able to see where the bulk of your debt is and make a repayment plan.

There is no one-size-fits-all approach to withdrawing additional funds from retirement accounts to pay off debt. As with most personal finance matters, it all depends on individual circumstances. However, receiving a lump sum from your investment is likely to be detrimental to your future retirement security as your portfolio returns will be based on a smaller balance sheet. You need this money for the rest of your life.

Whether you should withdraw more money each month is another story. However, this decision should be based on several factors, including your repayment plan (how fast are you trying to pay off this debt, or how fast are you necessity pay off this debt?) and how much more money are you going to borrow each month. You don’t want to deplete your account too quickly – like I said, you need that money for the rest of your life – but you might have room to withdraw funds.

If you only withdraw $600 from your retirement account each month, that’s just over 2%—not bad. The 4% rule has been a longstanding guideline. Under this rule, retirees could withdraw 4% of their retirement savings each year to pay for living expenses, and they didn’t run out of money before they died. In recent years, this rule has been actively challenged, with some experts saying that this figure is too high.

Investment firm Morningstar said in an analysis released in November that retirees would be better off with a rate of just 3.3%, assuming their portfolios are balances and withdrawals are fixed for the next 30 years. With these variables, retirees would have a 90 percent chance of not running out of retirement savings.

Do not miss: I am 63 years old, recently divorced and $130,000 in debt. How will I ever retire?

If you only spend 2-2.5% of your retirement savings each year, you have little room to take on extra money to pay off debt. For example, withdrawing 3% will give you an extra $200 to cover your debt. And when you pay off your debts, you can go 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 more things to keep in mind when it comes to paying off debt, whether you’re retired or not.

There are several debt repayment strategies. One type is the snowball method, where consumers pay off their debt in balance order, starting with the smallest balance. As each balance is squared, the money used to pay off that debt is applied to the next largest balance. Credit cards tend to have the highest interest rates and real estate loans tend to be the lowest, but you’ll know where things fall when you list your debts.

Check out the MarketWatch column “Retirement Hacks” for practical advice for your own retirement savings path

There is also an “avalanche” method, in which debts are arranged at interest rates. In this case, you pay the minimum amount on all other loans and invest the extra money you have to pay off the debt on the balances with the highest interest rate.

Zero interest credit cards can be an extremely useful tool if used correctly. These cards are limited. For example, a zero interest rate offer is only available for a limited time, ie. 15, 18 or 24 months before the high interest rate kicks in. Fees may also apply for transferring your credit card balance from another card. But if you can plan accordingly, fit that fee into your repayment plan, and reduce your debt in that time frame, you’ll save hundreds, if not more, in interest, thereby paying off your consumer debt much, much faster.

Also, when making additional payments on your debt account, call your creditor and make sure that the money goes towards paying off the principal, which actually reduces your balance. And, to be on the safe side, ask your creditors if there are any repercussions for paying off your debts faster… you don’t want to be hit with a fine for doing something that’s good for you.

Do you have a question about your own retirement savings? Write to us at [email protected]

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