Why Not All Debt Is Dangerous—and When It Might Even Help in Retirement
Welcome to “Money Myths Retirees Still Believe”—a blog series that uncovers the hidden beliefs that can quietly sabotage your financial peace of mind.
Many retirees cling to common money myths that seem true but can lead to poor decisions, lost income, or unnecessary worry. Each post in this series explores one myth—like “cash is trash” or “I need to beat the market”—and replaces it with a smarter, simpler mindset.
If you’re retired or nearing retirement, this series will help you reassess your approach and feel more confident about your financial future.
The Myth: “Debt Is Always Bad”
When Robert and Sandra retired in their early 70s, they made it their mission to pay off everything—including their mortgage. “We don’t want to owe anyone a dime,” Robert said proudly.
But when unexpected medical expenses popped up and their roof needed replacing, they were forced to tap into their retirement accounts at the wrong time—during a market downturn. The withdrawals triggered taxes and reduced their long-term income.
They’d done what most people believe is the right thing: eliminate all debt. But in the process, they gave up something just as valuable: flexibility.
👉 The myth that “all debt is bad” can cost retirees both comfort and control.
Why This Belief Feels Right (But Isn’t Always)
Most of us grew up with one simple financial lesson: debt = danger.
And in many cases, that’s absolutely true:
- High-interest credit cards? Avoid them.
- Overspending on cars or consumer goods? Definitely a red flag.
- Borrowing more than you can afford? Always risky.
But in retirement, some types of debt—used carefully—can be strategic tools rather than threats.
The Smarter Mindset: Not All Debt Is Created Equal
Let’s break it down. Here are three types of debt retirees might encounter—and how to think about them differently:
✅ Mortgage Debt
Paying off your home can feel like a victory—but not always a necessity.
Pros of keeping a mortgage in retirement:
- Low fixed interest rates (especially if under 4%)
- Mortgage interest may still be partially tax-deductible
- Keeps liquidity available for emergencies or investment income
- Avoids the need to sell stocks or take early withdrawals during a downturn
When it might make sense to keep it:
If your mortgage payment is manageable, your interest rate is low, and your portfolio is generating strong returns, you may be better off holding the mortgage and using your savings strategically.
✅ Reverse Mortgage Line of Credit
Reverse mortgages have a bad reputation—but modern versions, especially the federally insured HECM (Home Equity Conversion Mortgage), can offer smart solutions.
Why some retirees use them wisely:
- You don’t make monthly payments
- You keep ownership of your home
- The unused line of credit grows over time
- It can act as a cash reserve when markets are down
When it can help:
If you want to delay Social Security, avoid tapping investments in a bad year, or create a backup source of income without selling your house.
✅ Home Equity Loans or HELOCs (Home Equity Line of Credit)
These are best used before you need the money, while your income is still stable. Rates are typically lower than credit cards, and they can help fund big one-time expenses like:
- Medical bills
- Accessibility renovations
- Helping adult children with emergencies
The key: Don’t overborrow—and have a repayment plan.
A Real-Life Example
Margaret, a 76-year-old widow, had $400,000 saved, but most of her wealth was tied up in her paid-off home. When she needed a new HVAC system and dental work, her financial advisor suggested a reverse mortgage line of credit.
At first, she resisted. “Debt scares me,” she said. But once she saw that she could access her home equity without selling or moving—and without monthly payments—she felt relief.
Now she has a cushion, and her investments stay untouched. “It’s not about taking on debt,” she said. “It’s about managing my assets wisely.”
The Hidden Cost of Being “Too Debt-Averse”
If you automatically reject all forms of borrowing, you might:
- Pull money from retirement accounts too soon
- Lock yourself into illiquid assets like a fully paid-off home
- Miss out on investment growth by prioritizing debt payoff
- Lose sleep over emergencies that could be easily covered with strategic borrowing
3 Questions to Ask Yourself Before Using Debt
- Is this helping me manage cash flow, or just postponing a problem?
- Do I understand the interest rate, fees, and repayment terms?
- Is this improving my quality of life or protecting my long-term plan?
If the answer is yes to #3, and you’ve thought through #1 and #2—you’re not being reckless. You’re being smart.
The Takeaway
Debt is like fire. Handled carelessly, it can burn you. But used carefully, it can provide warmth, flexibility, and control.
Not all debt is dangerous.
Not all borrowing is bad.
And in retirement, the real enemy isn’t always what you owe—it’s what you may give up by fearing debt entirely.
You’ve worked hard for your savings. Don’t be afraid to use every tool at your disposal to make retirement work for you.