A Debt Relief Guide for Retirees

More than a third of Americans over 65 are struggling with credit card balances—when they should be spending that money enjoying their golden years. Instead, 7.5 million seniors said they are unable to pay for the medicine they’re prescribed.

You don’t need to live like this. And you don’t have to do it alone. Getting out of debt is easier when you realize you have free expert help at your fingertips.

Ways to save

Before you made the decision to retire, you spent years saving in a 401(k), Roth IRA, or another retirement plan. Each year, you should have saved up to 15 percent of your annual income.

But if you didn’t, you might be worried that your savings aren’t enough to pay off your debt. If that’s the case, here are a few solutions.

• Find a part-time job: If you’re too young to enroll in Medicare, then a part-time job can help you come up with some money in case of a medical emergency. Or if you just want it to travel or as a cushion, you could find a job you enjoy.
• Cut back on expenses: Now that you’re on a limited income, there are no more big paychecks to look forward to at the end of each week. So, cutting back on discretionary items will help you find the money to pay off debt.

How to find affordable housing

Housing is one of the biggest expenses you’ll have in retirement. According to an Employee Benefit Research Institute report, people 75 and older use 45 percent of their budgets on housing, making it their largest expense. Making housing more affordable can save you hundreds of dollars each month, and thousands of dollars overall.

• Downsize your home. Downsizing may sense if you’re not flush with retirement savings and you haven’t paid off your mortgage yet. By moving into a smaller house or condo, you could cut down your monthly and annual expenses and stretch the savings you do have.
• Find a roommate. Cutting some housing expenses can help you but cutting them in half could help you more. Getting a roommate is a great way to cover expenses without taking a huge financial hit.
• Relocate. If you’re living in an expensive city, relocating can save you money. If you don’t want to move out of your state or city, even finding a more affordable neighborhood can help your savings.

What to do about healthcare

It’s essential that you enroll in Medicare. If you don’t, you’re missing out on important coverage—and you’ll have to pay hefty penalty fees that get tacked onto your premiums. But it’s also important to realize Medicare may not cover everything – especially your long-term care.

You can cover what Medicare won’t, like nursing homes and other long-term care expenses, through either Medicaid, short-term health insurance, or the Affordable Care Act (ACA) subsidized plans.

Medicaid should be your first option. However, not everyone qualifies for it. It’s designed for low-income people and households, so check this calculator to see if you might qualify. In most states, it covers you if you’re below 138 percent of the federal poverty line.

If you don’t qualify, you will need to cover the cost of long-term care another way. Here are two alternatives:

• ACA subsidies: This may not cover all your costs, but it will help in the form of discounted monthly health insurance payments. You can enroll during the Open Enrollment Period, or during a Special Enrollment Period if you no longer qualify for Medicaid.
• Short-term health insurance: As the name implies, they’re short-term plans that aren’t meant to be permanent. They can, however, help you cover the cost of long-term care.

According to the U.S. Department of Health and Human Services, 70 percent of people 65 and older will need long-term care at some point. So to make sure you’re paying as little as possible for healthcare expenses in retirement, take these steps.

• Know what Medicare covers. Medicare covers a lot, but not everything.
  • Part A will cover inpatient hospital care, hospice, lab tests, surgery, and more.
  • Part B covers preventative services, outpatient care, medical equipment, and home health care. See the full list of coverage here.
• Know what Medicare costs. It’s not entirely free. Part A is free for most people, but there’s a paid version of Part A if you don’t qualify for premium-free Part A. You can qualify if you’re under 65 if you got Social Security or Railroad disability benefits for 24 months or you have End-Stage Renal Disease. If you’re 65 or older, you can qualify for premium-free Part A:
  • If you already get retirements from Social Security or the Railroad Retirement Board,
• you’re eligible to get Social Security or Railroad benefits but haven’t filed for them yet,
• you or your spouse had Medicare-covered government employment. There’s no free Part B, so that’s an additional cost to account for. See the full list of costs for 2021 here.

Get long-term care insurance. This is one thing that Medicare doesn’t cover. Having long-term care insurance can help ensure that assisted living, in-home skilled nursing, and adult day care are affordable for you.

• This is especially important if you don’t qualify for Medicaid—which you likely won’t unless you’re below the federal poverty line.

The average cost of annual long-term care insurance premiums (for a 55-year-old couple) according to the American Association for Long-Term Care Insurance was $3,000. Compare that to the monthly cost of a private nursing home, which is $8,821 according to a survey by long-term care insurance provider Genworth.

“Too many seniors are uninformed about their healthcare options, and it ends up costing them,” said Eric Olsen, director of HELPS, a nonprofit law firm aimed at helping seniors with financial struggles. “Fully understanding all your options can help save you thousands down the line.”

When to draw Social Security benefits

You can start drawing Social Security benefits when you’re 62. But just because you can start drawing then doesn’t mean you should. The average monthly benefit is $1,514, according to the Social Security Administration. but you should plan beforehand so that you’re not solely depending on those checks when you retire. Drawing them too early could cost you, too. Here are some things to do before you draw Social Security benefits.

• Estimate your benefits online. Input your earnings and age into this calculator to see how many benefits you’ll receive. Bear in mind that this just an estimate and not the exact figure—you’ll receive that when you actually apply for benefits.
• Wait until your full retirement age. Find your full retirement age with this calculator. Why? Every 12 months after age 62, your benefit amount increases by percent. So, drawing them right away could cost you.
• Try to earn additional income. This is beneficial, especially if you’re still paying off debt. There’s no rule saying you can’t work once you’re drawing benefits, but there is a cap to how much income you can earn. If you’re younger than your full retirement age, the limit is $18,960. And when you reach full retirement age, the cap is $50,520, according to the Social Security Administration’s 2021 Benefits Planner.

How to pay off debt in retirement

By understanding how your major costs like housing and healthcare work, you can finally start budgeting around that and pay off your debt. The good news is you don’t have to do it alone.

If you still have debt after you die, the executor of your estate is responsible for paying it off. So, in retirement, choose someone you can trust who’s financially responsible to be the executor of your estate. The sooner your debts are taken care of, the sooner any benefits from your will get to your heirs. And the more debt you can pay off before you die, the more your heirs will benefit.

Here are some options that can help you enjoy retirement free from financial stress.

• Debt consolidation: Debt consolidation combines all your monthly payments into one and lowers your interest rate substantially, which saves you money. So, if you’re struggling with credit card debt and medical debt, debt consolidation may be a good option for you to save money. Some seniors also use the cash they receive from a reverse mortgage—a loan for homeowners 62 and older to turn some of their home equity into cash—to consolidate debt. Just make sure you consult a HUD-certified housing counselor before you take this route.
• Credit counseling: You can pay off debt on your own, but it’s easier when you have an expert in your corner. A credit counseling service can help you customize a plan to pay off your debt. The best part about it is you have trouble going from place to place, almost all counseling is done online or over the phone with a certified credit counselor.
• Debt settlement: With debt settlement, you can pay off your debt for less than what you owe. On average a successful settlement program can get you out of debt for 48% of what you owe. This may be a good option for retirees who aren’t looking to get a new loan any time soon— because your credit score will take a hit from it.
• Bankruptcy: If you’re completely overwhelmed by debt and collection calls, and you simply cannot afford to pay, then you may want to consider bankruptcy. Retirement accounts are almost protected during bankruptcy and even assets like your home may qualify for a full exemption, depending on the state where you live.

“This information can be overwhelming to seniors,” Olsen said. “That’s why organizations like Debt.com and HELPS are important to reach out to.”