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Why retiring with an EMI isn’t always a mistakeWhile retiring debt-free remains an ideal goal, it shouldn’t come at the expense of exhausting your retirement savings.<\/p>\nFor decades, conventional wisdom has suggested that people should retire debt-free. Because once your salary stops, your retirement income should fund your lifestyle, not your past borrowings.<\/p>\n
However, with home loans now stretching to 25-30 years and people buying homes later in life, an increasing number of retirees may enter retirement with an outstanding loan.<\/p>\n
Does that mean they’ve made a financial mistake?
Not necessarily, say experts. The real question isn’t whether you have an EMI after retirement, but whether you can comfortably afford it without compromising your retirement lifestyle.<\/p>\n
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Calculate My ScoreWhy retiring with an EMI isn’t always a mistakeWhile retiring debt-free remains an ideal goal, it shouldn’t come at the expense of exhausting your retirement savings.<\/p>\n
“While retiring debt-free is an ideal financial goal, it isn\u2019t the only indicator of financial preparedness,” says Kundan Shahi, Founder, Zavo.<\/p>\n
What matters more is whether the EMI is supported by reliable post-retirement income such as a pension, annuity, rental income or a well-planned retirement corpus. A reasonably priced home loan may remain manageable if it doesn’t interfere with essential household expenses, healthcare costs or emergency savings, according to him.<\/p>\n
However, with RBI’s recent repo rate cuts reducing borrowing costs for many floating-rate home loan borrowers, lower interest rates alone should never be the reason to carry debt into retirement, he points out.<\/p>\n
The decision should instead be based on affordability, liquidity and long-term financial security. <\/p>\n
Retirees should avoid carrying high-interest unsecured debt, such as personal loans or credit card dues, as these can quickly strain retirement finances, he cautions.<\/p>\n
Not all loans are equally harmful in retirementIf you are approaching retirement with multiple loans, deciding which one to repay first can make a significant difference.<\/p>\n
The biggest retirement killers are high-cost unsecured borrowings such as credit card dues, personal loans and consumer finance loans because they carry high interest rates without creating long-term assets, according to Balram Bhagat, Managing Partner, Pension Products.<\/p>\n
The next priority should be vehicle loans and other borrowings taken for depreciating assets.<\/p>\n
A home loan, on the other hand, finances an appreciating asset and usually comes at a lower interest rate. While it should ideally be repaid before retirement, Bhagat says carrying a manageable housing loan may still be acceptable if it is backed by stable retirement income.<\/p>\n
His suggested repayment order is simple: Credit card dues and personal loans, consumer loans, vehicle loans and home loan.<\/p>\n