4 Reasons Why You Shouldn't Carry Debt into Retirement

Retirement takes planning. And one of the things we each have to decide is what kind of retirement we hope to enjoy. Are you okay hanging out with the grandkids and fishing with friends? Or would you rather travel the globe to see how the rest of the world lives?

Whatever your "dream" retirement looks like, it will be easier to realize if you move into your golden years with retirement savings, no debt, and a plan. Here, we cover four ways taking debt into retirement could upend your dreams.

But first: When we refer to being debt-free, we mean that everything is paid off except your mortgage. Naturally, if you can pay your mortgage off before retirement, that's a bonus. Still, most people will have a housing payment of some sort, be it monthly rent, a mortgage, or taxes and insurance on a mortgage that's paid in full.

1. Debt adds to stress levels

We mention this first because it may be the most worrisome result of going into retirement with debt. From the first time we swipe our first credit card or finance a car loan, we know what it feels like to work for two different companies: the business that employs us and the company we owe money to.

Let's say you earn $60,000 annually or $5,000 a month. You buy a new car for $40,000 at 7% interest and plan to pay it off in 60 months. That puts your monthly payment right around $792. Here's how to figure out how many hours a month you work for the bank or credit union that loaned you the money:

• Divide your annual salary by 2,080 hours (the average number of working hours in a year: 52 weeks x 40 hours). $60,000 ÷ 2,080 = 28.85. You earn $28.85 per hour.
• Divide $792 (the loan payment) by your hourly wage. $792 ÷ $28.85 = 27.45. You work over 27 hours a month for the lender.

As a younger person who can pick up overtime hours or take on a part-time gig, the stress is there but may not prevent you from sleeping at night. In retirement, when the only option is going back to work, the stress of owing money is an entirely different kettle of fish. There simply are not as many options for quickly paying the debt down.

What you can do: Starting today, don't take on any new debt without first figuring out how many hours a month you'll have to work to pay for it.

2. The stress of debt wreaks havoc on your body

Not to put too fine a point on this, but stress is bad for us physically, mentally, and emotionally. Among the issues that can arise from living with stress are:

• Headaches
• Insomnia
• Heartburn
• Weakened immune system
• High blood pressure
• High blood sugar
• Stomach issues
• Depression
• Risk of heart attack

Everyone reacts to stress differently, and you may be one of the fortunate ones who breezes through, but think about how long you've worked and how much you deserve relaxing days. Getting rid of as much debt as possible makes it easier to plan a workable budget and, more importantly, to relax.

What you can do: Take care of yourself and implement simple relaxation techniques into your everyday life. For example, pace yourself; set small, realistic goals; eat well; get enough sleep; and talk about the things that are bothering you. It's easy to get caught up in day-to-day living and forget to be kind to your body and mind.

3. Interest payments will eat into your monthly income

There are some kinds of debt -- like mortgages and business loans -- that can ultimately increase your net worth. That's not what we're concerned about here. The kinds of debt that will eat up your monthly income without offering anything in return include credit cards, most personal loans, payday loans, and auto loans (unless you're purchasing a rare vehicle with an amazing resale value).

Let's imagine that a man named Joe retires and, between all sources of income, has $5,000 per month. Joe's car payment is $500 monthly, and he makes a personal loan payment of another $500. That's $1,000 per month that Joe must live without until he gets those debts paid off.

What you can do: In the years leading up to your scheduled retirement, focus on paying off high-interest debt, followed by other types of debt. If you're a year or two away from retirement with debt hanging over your head, consider extending how long you work.

4. Medical costs can be a bear

As the only industrialized nation in the world without universal health coverage for its citizens, American retirees must plan to pay out of pocket for many health-related expenses. According to a recent analysis from Fidelity, a single person retiring this year may need to have approximately $157,500 saved (after tax) to pay for healthcare expenses in retirement. For the average retired couple, that's $315,000.

That may be a tough figure to hear, and to be sure, much of it will depend on how healthy you are. Still, paying your portion of medical costs (no matter how much they are) will be easier if you aren't carrying debt.

What you can do: If you work for a company that offers a health savings account (HSA), you're in luck. Unlike most flexible spending accounts (FSAs), the funds you contribute to an HSA are carried over from year to year. After you turn 65, you can withdraw the money without getting hit with a tax penalty. As long as you use the money to cover medical expenses, you won't even have to pay income tax on your withdrawals.

Retirement is sort of like a Choose Your Own Adventure book. The outline of your story is there, but you get to fill in the details. Before bidding your coworkers adieu, determine how you want your retirement adventure to look and plan accordingly.