Is the problem of having too much debt chiefly a problem of the young and middle-aged, or are retirees also increasingly overburdened by debt today? The fastest growing area of bankruptcy filers are senior citizens -- and college-agers are right behind them. So, as the boomers, who were notorious for overspending and under-saving, start hitting retirement, I wish I could be happier as to what I'm going to see. But the statistics aren't good, and past financial sins have a nasty way of catching up with you.
Now certainly there are baby boomers and other people already in retirement who have done really well. There are, after all, lots of stories out there of fortunes still being made by people who are in their 60s, 70s and even in their 80s. But it certainly would be better to enter those last three decades of your life with a little bit of money.
Is there such a thing as a "good debt" to have in your retirement or early pre-retirement years? For example, if you have an unpaid mortgage, there are some financial experts out there who will argue that you're benefiting from a nice tax deduction. So, if you can still afford those mortgage payments in your 60s, does it make any sense to pay off the house earlier?
I don't think there is such a thing as "good debt" to have, I really don't.
Debt does two things. First, it increases risk and, second, it robs you of cash flow. Both these things affect your ability to invest and become wealthy.
It doesn't make sense to trade prolonged debt and interest payments in return for a little bit of a tax-break -- and folks we're talking a little tax break here. If you pay out $10,000 in interest and you're in the 25 percent tax bracket, it only saves you $2,500 in taxes. Well, when I trade a dollar for a quarter, I wouldn't call that a good deal.
Some financial planners and advisers recommend that people use personal financial ratios to prepare for retirement. Such plans offer people clear decade-by-decade benchmarks and targets that can help them move from a situation of high debt and low savings to a situation of high savings and low debt over their lives. What is your opinion about financial ratios when it comes to retirement saving and debt elimination?
Well, most financial advisers are a lot more lenient when it comes to debt than Dave Ramsey is. So, my opinion would be that I would get a little more hard-core -- OK, a lot more hard-core -- than most of those debt-type ratios would indicate.