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INTRO: Hi, I'm Ed Slott
and I'm Jeff Levine.

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And we're two guys who just love
to talk about retirement and taxes.

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Look, our mission is simple to educate
you the saver so that you can make better

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decisions because better decisions on the
whole lead to better outcomes, and here's

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how we're going to do that each week.

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Jeff and I will debate the pros and the
cons of a particular retirement strategy

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or topic with the goal of helping you
keep more of your hard earned money.

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Yeah, but we won't know which side of
the debate we're taking until we flip a.

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Winner of the coin flip gets to pick
which side of the debate they want to

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argue and both of us will have to argue
in favor of our respective positions,

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whether we agree with them or not.

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At the end of each debate, there's
going to be one clear winner.

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You a more informed saver who
can hopefully apply the merits of

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each side of the debate to your
own personal situation, to decide

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what's best for you and your family.

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So here we go.

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Welcome to the great retirement debate.

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Ed Slott: Welcome everyone.

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I'm Ed Slott here with Jeff Levine
on the great retirement debate.

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Jeff, what are we discussing
on this new episode?

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Jeff Levine: All right, today, I've
got a hot topic for us to discuss

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one that comes up all the time.

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Uh, should I pay off my
debt before I retire.

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In other words, should I go
into retirement debt free?

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And just to clarify here, Ed, we're
not necessarily talking about, like,

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you can never use a credit card again.

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What we're talking about is

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Ed Slott: Right.

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Jeff Levine: You know, coming into
retirement with no mortgage you've

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paid down or paid off your car.

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You're, you're not carrying
a debt from month to month.

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In other words, if you use credit cards,
you're paying that off each month.

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So you're not carrying debt forward
from, from month to month, you're

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still allowed to go use your credit
card at the store from time to time.

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So should I pay off my debt
before I retire is what

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we're going to debate today.

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All right.

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So let us, uh, flip a coin and see
which side of the debate we are on

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Ed, would you like heads or tails?

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Ed Slott: The winning side, heads.

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Jeff Levine: All right.

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Heads for ed once again,
once again, here we go.

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All right.

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And the answer is tails so I will pick
ed at, I, I will take these, the side of

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having debt into retirement is, is okay.

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Carrying debt.

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And, um, I'll let you take the, the
side of pay off your mortgage, pay

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everything off before you get there.

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Does that work for you?

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Ed Slott: Oh wow.

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You're a better man than me.

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I don't like debt in retirement.

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So I'm gonna be interested in what you're
saying, your arguments to pile up debt.

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And as you said, make it clear.

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Well,

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Jeff Levine: I didn't say pile up that I
said not have to pay off  all the time.

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Ed Slott: Uh, you know, it's interesting
when I do programs for consumers,

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I always ask them, uh, how many of
you are debt free in retirement?

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Most of them raise their hands on.

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It's good in my opinion.

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I think it's good to be
debt free in retirement.

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Uh, so you don't have obligations
that's so that's why you retired.

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And then I'll ask, uh, some
of the people who raised their

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hands, which is almost everybody.

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Mainly they are retirees.

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And I'll say, what does it mean?

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Why did you raise your hand?

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What does it mean to you
that you're debt free?

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They said, well, I paid off my home.

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I don't have any mortgage.

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There have no credit card debt
and I don't owe anybody any money.

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So I'm debt free.

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And then of course I add.

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Well, not if you have an IRA,
that's a different topic.

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Jeff Levine: That's a, that's
a topic for another day.

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Yeah.

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Ed Slott: That's a topic for
another day because there is

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debt in a tax deferred account.

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But I like that.

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I mean, who wants, we always talk about
simplicity, not worry about paying bills.

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Uh, this is why you retired
to put all that behind you.

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So I like the idea of not having
to worry about owing and building

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interest and owing bills in retirement.

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I just don't think it's a good thing.

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Jeff Levine: Now I, I understand that.

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And there is a sense there is a,
a good point to simplicity and

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certainly paying down debt will have,
you know, that many fewer things

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you have to deal with in your life.

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But I think of debt as a tool.

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Right.

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And I, I don't hate screwdrivers.

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I don't hate hammers.

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I don't hate saws.

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Like when I need one, I use it.

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And so if I've got a
situation where I'm thinking.

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Uh, you know, for instance, the
last few years, mortgage rates

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have been historically low.

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We're starting to see that reverse now
in 2022, but for years we have been

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at, you know, rock bottom mortgage
rates for those in retirement.

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I mean, debt, in some cases
almost could be an asset.

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Right.

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And think about someone who a few years
ago, bought a retirement home and they've

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locked in a mortgage at 3% or 4% when
inflation today is closer to seven or 8%.

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Even if that calms down a little bit,
you know, they are actually paying, you

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know, the, the fact that they have debt
at 3% or 4% could actually be an asset.

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Someone if they could, would, would
actually want to buy that debt from

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them because it's so inexpensive

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Ed Slott: well, I've had clients over the
years, that kind of make that argument.

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They'll say, look, if I could get,
and I, I used to agree with them.

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They, they would, uh, set this premise
if I could borrow at 2% or 3% and invest.

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I mean, this goes back,
shows how old I am.

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Uh, I have clients that used to complain
how come, uh, I don't get 15% on my CDs

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anymore, these are from the eighties.

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Uh, I'm waiting till it goes up to 18%.

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Well, we don't have those kind of
rates, uh, unless you can really

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make a killing in the market.

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So they might say, well, if I
could borrow, and this is just

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pure math, three, four, 5% and
make 10% a, a year R and I up.

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As you get closer to retirement
or you're already there.

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I don't think what if the tax, what
if the stock market crashes and all

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your projections are off, you may not
have the years to recover from that.

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So that's one of the reasons
I don't like that argument.

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The argument mathematically makes sense.

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Sure.

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If you could buy dollars at
3% and settle, sell them at

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10%, I'd do that all day long.

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Jeff Levine: Well, I mean, the
other thing that using debt does, it

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allows you more flexibility because
if you have debt, it means, uh,

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well let me put it a different way.

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If you've paid down your
debt, it means you have used

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up some of your other assets.

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Right.

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And so having like doesn't
mean you can't do it again.

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For instance, let's say you have a.

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That's worth, you know, $500,000 and
you had a $300,000 mortgage against

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it, and you took $300,000 from your
bank account to go put it into, uh,

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you know, to pay off your mortgage.

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It is true that you have no longer have
the interest rate, but a, uh, you know,

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that you're paying interest, but, one,
you're not making money with that 300,000.

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I agree with your point, you
don't know what the future holds.

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What if you lose money if you're
investing it, but beyond that, what,

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what if you need those dollars again?

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What if you run short because you,
you you're, you're out of assets

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or you're running low on assets.

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You don't feel comfortable anymore because
you don't have as many liquid assets.

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When people see dollars in the
bank, they feel comfortable.

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They know they can go out and spend it.

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When people have a house
worth a lot of money.

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Even though the house may
have a ton of equity in it.

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They don't think about the
ability to tap it in the same way.

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And in fact, even if they do,
it might become more expensive.

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For instance, if interest rates
continue to rise taking, uh, you know,

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the only, the, the thought that you
had of what we don't know what the

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markets will do, or we don't know what
interest rates will continue to do.

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If they continue to rise.

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If we go back to a scenario where you were
anywhere close to, you know, 15% back in

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the eighties, but even if it was seven
or 8%, that's a lot more expensive if you

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have to take a home equity loan down the
line than it would be today, just to leave

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your mortgage and continue paying it.

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And with a lot of types of debt,
whether it be student loan interest,

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or uh, home interest, uh, there are
tax benefits associated with it.

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So it may not even be the true cost
of the debt that you're paying because

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you get a tax break for some of it.

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Ed Slott: Right.

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Uh, but many people are not getting
the tax break due to the limitations

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of the most people take, especially
older retired people over 65

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have largest standard deductions.

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So they may not get that,
uh, that tax benefit.

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But going back to what you said,
you know, if there's a need for it.

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Like I remember a client years ago
had this decision and I like the idea

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actually that you said to lock it in.

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But it may, you may be better off if
you really wanna lock in the ability

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to access money when you need it, you
might be better off with a, a credit line

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or even a reverse mortgage where, you
know, the money is there if you need it.

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And so that takes that worry away.

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That's that was one of your
points without, uh, having the

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big mortgage or the big interest
payments and the money is there.

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If you need it, you only pay interest,
obviously if you tap into it.

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Jeff Levine: Well, I'm sure we'll
cover this on a, on a future episode.

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In fact, I know we will, uh, at some
point, but one of the big differences,

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I agree with you on the reverse
mortgage there, a lot of people hate

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reverse mortgages, whether that's
right or wrong is, is for another day.

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Ed Slott: Yeah I don't wanna go
there because a lot has changed

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in that marketplace and, uh,

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Jeff Levine: A lot, yes.

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Ed Slott: And there are advantages,
but I just used it as an example of

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having access to money without sort of
paying for it with monthly payments.

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Jeff Levine: And I think
that was a good point.

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The, the one where I, where I would
disagree with on the home equity

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line is a bank can call that in.

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Right.

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So where.

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One of the real benefits.

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Again, I don't wanna go into that
today too much, but one of the

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benefits of like the reverse mortgage
style of, of home equity line, right?

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Uh, it's not a home equity line of credit,
but effectively functions in a very

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similar way is that if it's a reverse
mortgage, the bank can't call it in.

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Whereas a home equity loan, if you look
back for like, let's say 2008, 2009, Banks

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just started saying, Nope, you know what,
no more home equity loan, or we're scaling

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it down or we're taking it away from you.

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Ed Slott: That's right.

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Jeff Levine: And, uh, and, and
so again, that let's, that's an

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unknown, just the same way you're
saying the market is unknown.

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That home equity line of
credit could be an unknown too.

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If things are really bad and you need
to get that money, is it because things

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are just really bad for you personally?

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Or is it because things economically
have gone really bad for everyone?

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And if that's the case, the bank may
just take away your line of credit

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and you're back to the same situation.

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What do I do?

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Ed Slott: Well, again, I still don't like
debt for that when you need something.

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Uh, but there's a different kind of debt.

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I was saying before I had a client
that wanted something and they took

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money equity out of their home because
they wanted to buy, I don't even

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know what to call all those big,
uh, I, I don't know, you know, those

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big wagons, there's a name for it,
where they were big trailer things.

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What are those called?

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Jeff Levine: Uh, are
you talking about an RV.

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Ed Slott: Yeah.

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Okay.

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But a big one.

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Is that the name of them?

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Jeff Levine: Yeah, an RV.

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Yeah.

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Recreational vehicle.

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Yeah.

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Like one of the bus style ones where

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Ed Slott: Right, right.

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You know, you could live there, you could
stay overnight and they traveled all over.

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Jeff Levine: I believe they're
technically known as class a

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RVs or class, a organization.

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Ed Slott: All right.

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Whatever class.

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Jeff Levine: You know, in my spare
time, ed, I'm also a, an RV specialist.

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Ed Slott: Yeah, well obviously
I am not a big, a very big car

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that goes up high and long like a
truck except you could live in it.

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And uh, this client, they decided that's
what they wanted to do in retirement and

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they took about 300,000 out, bought one
of these huge things that had everything.

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And for years they just
traveled around the country.

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So they were getting use out of it.

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To me, that's probably a good use of
debt because they were using it and

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enjoying it in, in their retirement years.

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And they had the income to
cover the payments of course.

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Jeff Levine: That's fair, but you use your
house in retirement and a lot of people

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think about paying off that debt too.

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All your clients were thinking
about in that case was taking their

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house on the road quite literally.

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Right?

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Ed Slott: Literally that's what they did.

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And I think eventually I lost touch
with them over the years, but I think

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they eventually sold their house.

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Jeff Levine: Well, and I would also
say that, you know, there's other

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times when, if you're looking at
debt as a, as a possibility, yes.

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The market can do worse than zero.

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We know that, but there are some things
in which you can invest that are at least

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have some sort of reasonable guarantee.

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For instance, a treasury bill offered
by the federal government, right.

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Theoretically America could go
broke, but we can always add another,

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like the, the fed can make money.

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We've seen that in recent history.

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Right?

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So what if you are buying, let's
say for instance, you know, In

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the process of building our home,
we're shopping for furniture.

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There are a lot of times where we go
out and we look at a sizable purchase

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and they'll offer us 0% financing for,
you know, for three years or five years.

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Well, I, I, even if I wanna remove
all market risk from my, from

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my life, I can take the dollars
that I would pay and cash today.

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And I could turn around and put them
in a, a treasury bill or a CD or

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something else that has some sort
of, uh, guaranteed rate of return.

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Even if it's nominal or even if
it's small, it's still something

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and it's money in my pocket as
opposed to the company's pocket.

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Ed Slott: But it would have to exceed
the interest rate you're paying

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to make it mathematically viable.

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Jeff Levine: Yeah, but there are
a lot of in, well, at least, uh,

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until recently there have been a
lot of interest free promotional.

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Like you wanna go by furniture, for
instance, you can see that on almost, uh,

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you know, many furniture stores, right?

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They'll have five years
interest free financing.

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They just bake it into
the cost of their product.

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They know that it's not, you know,
it's not really interest free for them.

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They're just selling something
at $3,000 that they probably

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could have sold at 2,500.

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But they've got this financing
element baked in there to them.

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So why, why not take advantage of that?

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Why, why prohibit yourself from all debt?

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I'm not, I'm not saying that
you should come into debt trying

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to accumulate as much debt.

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Ed Slott: No, no, definitely not.

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But you know, goes back to the feeling.

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Think about the people that
are approaching retirement

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listening today are already there.

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They spent maybe 30 years of
their life paying off a mortgage.

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And the day they paid it
off was like the holy grail.

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I mean, they used to have parties and
mortgage burning parties years ago

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that I finally paid off my mortgage.

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Most people don't wanna go back there.

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Uh, most people don't want debt.

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They, they did that during
their working years.

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It took a chunk of their paycheck.

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Now they have maybe a
fixed income in retirement.

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They don't wanna use that going
back and paying off debt again.

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Now mathematically using some of
the tools that you're talking about.

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It might pay, but I don't think it it's
good for people just psychologically.

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They wanna be free of debt going into
retirement years, having debt like a whole

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mortgage to them would be going backwards.

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Jeff Levine: Well, I think that's
one area where we can absolutely

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agree on ed is that psychologically.

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Uh, it may feel good and that
your feelings matter, right?

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Like, right.

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The reason you work hard over
the course of your lifetime

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is so that you have freedom.

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And if that freedom means you're willing
to, to leave a little potentially

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on the table to enjoy peace of mind.

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I can get behind that.

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You wanna enjoy your
retirement a hundred percent.

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That's why you work hard all those years.

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No question about it.

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Ed Slott: And the reason I love a debt
free retirement, it's the same reason.

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I love a tax free retirement, cause as
I said up front, uh, taxes are a debt

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and nobody wants to deal with that.

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Most people going into retirement
don't want added expenses.

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Jeff Levine: Ed,  would you, would you
sum up maybe some of the key points here

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for, for listeners so that if they're
thinking about this, they could walk

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away with, with some key takeaways here.

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Ed Slott: All right.

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So I'll give you the, the, the scenario,
which happens a lot, not so much lately.

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Uh, when I used to see more
clients that would come in.

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And I remember this one banker client
and he gave me the argument you gave.

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No, no.

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If I can get a, a mortgage, you
know, 3% and invest at 10%, uh,

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I'm going to come out ahead and
he would say, don't you agree at?

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Yeah.

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But what if the market, you know,
uh, then you have market risk.

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Now you are saying, uh, maybe you
can get more guaranteed and not

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guaranteed, but less risky investments.

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They may pay a lower return and maybe
you're still, uh, maybe you're still

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ahead and your points also were that you
can lock in the availability of money.

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My points is, uh, most
people in retirement.

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I think my opinion and I've met a
lot of them just don't want added

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debt in retirement, cause they
spent their whole life getting

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rid of debt, mainly home debt.

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And that's what we're talking about.

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And just to make it clear, uh,
we said this up front, we're not

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talking about the regular credit
card debt and all of that stuff.

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That's fine.

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If you pay the bill every month.

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Jeff Levine: Agreed.

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Yeah,  right.

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Make sure you pay that.

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That's another one where
we definitely agree.

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Don't carry credit card debt.

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That is, that is probably, it's hard to
find a scenario where paying credit card

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debt with an interest rate associated
with it is a good move because those

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credit card companies, they charge an
arm and a leg for that sort of interest.

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Well, Ed, you know, there are two
sides to every coin, but our listeners

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lives and retirement decisions are too
important to leave up to a coin flip.

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That's why the one thing that you and I
always agree on is that it's important

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to make sure you're talking through
any big decision with a knowledgeable

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financial advisor or tax professional
so that you can weigh the pros and

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cons of different options against your
specific set of goals and circumstances.

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So if you'd like to reach.

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To ed and I to continue the discussion.

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You wanna tell us something we missed?

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Wanna tell us why you really love carrying
debt into retirement or why you're happy.

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You paid it off.

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You got a topic for a future debate.

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We'd love to hear from you.

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You can reach Ed on Twitter
at @TheSlottReport that's at.

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The Slott with two T's report and
you can reach me at @CPAPlanner.

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That's @CPAPlanner.

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Let us know, reach out to us.

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We'd love to hear from you Ed as always an
insightful and informative and fun debate.

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Look forward to our next
discussion real soon.

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Ed Slott: Okay, Jeff.

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See you on the next episode of
the great retirement debate!

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OUTRO: Jeffrey levine is chief planning
officer for Buckingham wealth partners.

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This podcast is for informational and
educational purposes only, and should

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00:18:11,085 --> 00:18:14,385
not be construed as specific investment
accounting, legal or tax advice.

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00:18:14,415 --> 00:18:17,295
Certain information mentioned may
be based on third party information,

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00:18:17,300 --> 00:18:20,145
which may become outdated or
otherwise superseded without notice.

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00:18:20,205 --> 00:18:22,545
Third party information is
deemed to be reliable, but it's.

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00:18:23,264 --> 00:18:24,885
And completeness cannot be guaranteed.

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00:18:25,005 --> 00:18:28,034
The topic discussed in corresponding
arguments are those of the speakers

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00:18:28,185 --> 00:18:30,975
and may not accurately reflect
those of Buckingham wealth partners.