Tag Archives: credit card debt

Debt and Retirement

If you’re planning to retire in the near future, it’s a good idea to take inventory of any debt you may owe. Paying off your debt now can give you more breathing room to enjoy the type of retirement you want.

Where to Start: Repay Your NYSLRS Loans

A high priority should be any loans you have taken from NYSLRS. If you have an outstanding NYSLRS loan balance when you retire, it will reduce your pension.

For example, if a 60-year-old Tier 4 member of the Employees’ Retirement System (ERS) retires this year owing $10,000, the annual pension reduction would be $482.84. And that reduction would continue even after the total reduction exceeds the amount owed. What’s more, at least part of the loan balance at retirement would be subject to federal taxes.

ERS members may repay their loan after retiring. However, if you choose to pay back your loan after you retire, you must pay back the full amount of the outstanding balance that was due when you retired in one lump-sum payment. Following your full repayment, your pension benefit will be increased from that point going forward, but it will not be adjusted retroactively back to your date of retirement. Visit our Repaying Your Loan After Retirement page for more information if you are considering retiring with an outstanding loan.

debt and retirement - benefit reductions for loan balances

Other Debt to Check

Another priority is paying off credit cards. The average American household with credit card debt owes more than $6,006 in revolving balances and pays about $1,029 a year in interest, according to a recent analysis of federal data.

Fortunately, a federal law makes it easier to get a handle on your credit card debt. Credit card statements must now carry a “Minimum Payment Warning.” This tells you how long it will take, and how much it will cost, to pay off your balance if you only make minimum payments. It also tells you how much it will cost each month to pay off the balance in three years.

If you have more than one credit card balance, many financial advisers recommend you pay as much as you can on the card with the highest interest, while paying at least the minimum on lower-interest cards. Once you’ve paid off the high-interest card, focus on the card with the second-highest rate, and so forth. But some advisers say it might be better to pay off the card with the smallest balance first. That will give you a sense of accomplishment, which could make the process seem less daunting.

Mortgage balances make up 70 percent of the $15.24 trillion in U.S. household debt. But should you strive to pay off your mortgage before you retire? Financial advisers differ on that question. Paying off the house will eliminate a major expenditure and allow you to spend your retirement income on other things. On the other hand, if your mortgage rate is relatively low, you may want to focus on paying off other debts or boosting your retirement savings. What will work best for you depends on your particular financial situation.