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In the process of accumulating a nest egg as they approach retirement age, many boomers also have accumulated something that can threaten that egg: a huge amount of debt.
"Debt is a concern depending on how much they have faced reality and lived within their means, and whether they have a heavy mortgage," says Dick Bell, owner, Bell Financial, Calabasas, Calif. "If they are refinancing their mortgage this late in life to pay off debt, they may have a problem."
Boomers in their 50s particularly are worried about debt, adds David Woods, CEO of the National Association of Insurance and Financial Advisors and president of the Life and Health Insurance Foundation for Education.
Woods says many approaching retirement recognize that once they stop working, they will have no ability to generate income.
"What a looming terror that really is," he says. "All our lives we are used to having a job and feeling we have the time to work it out. One of the biggest fears among clients approaching retirement is, I will have debt I will not be able to handle."
"Where I have come across debt problems is with individuals who are in business for themselves," says William S. Graebe, principal of Graebe Financial Services, New York. "Theyre often late getting started in saving for retirement and getting their debt under control."
The financial advisor needs to talk turkey to boomer clients who have heavy debt about changing their spending habits, these advisors agree.
Bell, who is president of the Society of Financial Service Professionals, acknowledges it can be tricky getting an individual to change an imbedded lifestyle. But a consumer who sees his or her debt declining often feels so good about it that the behavior reinforces itself. "Most people can pay down debt if they stay focused on their efforts."
Although most advisors dont recommend taking on new debt late in life, older boomers should consider refinancing their mortgage if it is for a relatively short period and they can pay more than the minimum each month, to hasten payoff.
"If you have a 7% mortgage and you are overpaying [beyond the monthly minimum], its like making 7% on whatever you overpay," Bell notes.
However, credit card or other high-interest debt should be paid down before the mortgage, he adds.
Robert M. Roach, a field director with Northwestern Mutual Financial Network, Milwaukee, says the debt-payoff strategy depends on the clients situation. Some can comfortably enter retirement with debt because they still have considerable income.
"It may make some sense early in retirement to continue to carry mortgage debt," he says. "If a family has an income earner after retirement, a mortgage-interest deduction will still have some value to them. Other people should downsize [spending] at retirement to pay off their mortgage debt."
