My wife and I are 62-years-old. We have accumulated a significant amount of credit card debt, though we have never been late with any payments. My employer is offering an early retirement incentive which would allow us to cut our debt in half. If we wait to retire at 66, our monthly income in excess of expenses would be about 10% better than if we take the incentive, but we would have a much larger debt load. Should we take an early retirement incentive to reduce our debt?
You are facing one of a few major financial decisions that can have an impact (positively or negatively) on the rest of your life. With the information provided, below are some items you may want to consider in your planning:
- You will want to take into consideration income taxes on the lump sum retirement incentive - which might reduce the value by 15-35%.
- Many folks no longer have equity in their home – but if you do perhaps a cash out refinance or home equity line/loan is part of the solution.
- If you are contributing to a 401(k) plan you might consider reducing or eliminating the contribution – using the amount to pay down credit card debt – and continue to work to 66.
- In my experience, many times forgoing the retirement incentive makes sense if you are working at least another 3-5 years.
I hope you will consider engaging a financial planner to assist you in making a prudent decision. As you point out – your situation is both a debt management as well as a retirement issue and a financial planner is trained to help coordinate your planning and develop the best course of action given your objectives. The Financial Planning Association has a good engine to search for financial planners in your area.