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October 27, 2025

Money Matters
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What Should You Pay Off Before Retirement?

Jatniel Brito
5 minute read

Find out which debts to pay off before retirement to protect your savings, reduce stress, and enjoy financial freedom.

Retirement should be a time to relax, travel, and focus on what truly matters without worrying about monthly bills. But if you’re heading into retirement with lingering debt, those golden years can feel a little less golden.

Before you hang up your work shoes, it’s smart to review what debts you still owe and decide which ones to pay off first. Here’s how to prioritize your debt before retirement and set yourself up for lasting financial peace of mind.

Why Paying Off Debt Before Retirement Matters

Becoming debt-free before retirement isn’t just a financial goal, it’s a lifestyle upgrade. Once you stop earning a steady paycheck, your monthly budget may tighten, and high-interest debt can quickly become a burden. Paying off debt now can help you:

  • Reduce financial stress: Fewer monthly payments mean more breathing room on a fixed income.
  • Protect your retirement savings: Avoid dipping into your nest egg to cover debts, which helps your savings last longer.
  • Gain flexibility: Being debt-free opens the door to more travel, hobbies, or family time without financial strain.

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What Debts to Pay Off Before Retirement

Not all debt is created equal. Some balances are much more urgent to eliminate before retiring. Here’s what to focus on first:

1. High-Interest Credit Card Debt

Credit cards often carry rates above 15% or even 20%. Carrying this debt into retirement can quickly drain your savings. Paying it off before you retire can free up your monthly budget and save you thousands in interest over time.

2. Personal Loans

Even with fixed rates, personal loans can weigh heavily on a limited retirement income. Paying these off early simplifies your finances and reduces your monthly obligations.

3. Auto Loans

Auto loans may have lower interest rates, but they’re still another recurring bill. If your car is in good shape and you plan to keep it, paying it off before retirement can free up funds for other priorities.

4. Home Mortgage

This one depends on your situation. If you have a high monthly mortgage and a fixed income, paying off your home can provide peace of mind and extra cash flow.

However, if your interest rate is low, keeping your mortgage while investing extra funds elsewhere could make sense. Many retirees find comfort in owning their home outright, while others prefer maintaining liquidity. The best choice depends on your broader retirement plan.

5. Other High-Priority Debts

Pay off any remaining loans with steep penalties or high rates like payday loans, outstanding medical bills, or private loans. These debts can quickly erode your retirement savings if not managed early.

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Debts You Might Keep in Retirement

Not every debt needs to be wiped out before you retire. Some may be manageable or even strategic to carry:

  • Low-interest student loans: If your rate is minimal, it may make more sense to keep paying gradually rather than withdrawing from savings.
  • Low-interest mortgage: If your home loan has a low rate and your investments earn more, you might benefit from keeping your mortgage.

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When deciding, ask yourself:

  • Can I comfortably make the payments on my retirement income?
  • Does paying this off early improve my financial freedom?

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The Goal: Financial Freedom and Peace of Mind

Ultimately, paying off debt before retirement isn’t just about improving your balance sheet, it’s about creating peace of mind. Entering retirement debt-free gives you the freedom to focus on what you enjoy most, without the constant stress of monthly payments.

And just as clearing debt simplifies your finances, consolidating your old 401(k)s and IRAs into a single PensionBee IRA can help streamline your retirement savings.

At PensionBee, the process is simple. Many rollovers happen automatically, but if yours needs extra care, our personal rollover managers called BeeKeepers are here to help every step of the way. You’ll get expert management and diversified portfolios powered by ETFs like SPY and MDY from State Street Investment Management, one of the world’s largest and most trusted asset managers.

Frequently Asked Questions (FAQs)

1. Should I pay off my mortgage before retiring?

It depends. If your mortgage has a high monthly payment or interest rate, paying it off can reduce financial stress. But if your rate is low, keeping your mortgage while investing extra money elsewhere might offer a better return.

2. What’s the most important debt to pay off before retirement?

Focus first on high-interest debt like credit cards and personal loans. These debts cost the most over time and can quickly drain your retirement savings if left unpaid.

3. Is it okay to retire with some debt?

Yes, as long as it’s manageable. Low-interest debt such as a small mortgage or student loan can be acceptable if it fits comfortably within your retirement income plan.

4. How can I simplify my finances before retirement?

Besides paying off debt, consider consolidating your retirement accounts. Rolling over old 401(k)s and IRAs into a single IRA can make managing your savings easier and more transparent. 

If you’re looking to simplify your retirement, PensionBee can help by combining your old retirement accounts into one easy-to-manage IRA and keeping everything visible in one place.

Your investment can go down as well as up. This post, and any associated customer testimonial or third party endorsement, is provided solely for informational and educational purposes, should not be taken as tax, legal, financial or investment advice and is not an offer, solicitation, or recommendation to buy or sell any securities or investments.

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A rollover is not your only option for an old 401(k) or IRA, you may alternatively decide to leave your assets with your former employer, rollover your plan to a new employer or to cash in your old plan with the resulting tax penalties applied.  PensionBee Inc. does not provide tax advice or individual recommendations as to which of these options is most appropriate for your individual circumstances.  To understand the implications of each of the options available to you and help you decide between them you may wish to consult a tax professional who has knowledge of your individual circumstances. For more information see FINRA - Retirement Accounts.

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