A man and woman are embracing each other.
Planning for retirement

Paying off debt before you retire

Should you use retirement money to pay off your mortgage? Your kids' college expenses?
6 minute read

Tips for handling different types of debt

It seems obvious: The higher your debt payments are when you retire, the less you'll have to spend on other things.

But how much should you spend on paying down debt versus stashing away extra money for retirement?

Your mortgage

When interest rates are low, you may be better off putting potential "extra" mortgage payments into a retirement account that holds stock or bond investments. That gives your money a chance to grow, which could benefit you more in the long run.

Taking money out of a 401(k) or an IRA to pay off your mortgage is almost always a bad idea if you haven't reached age 59½. You'll owe penalties and income taxes on your withdrawal, which will likely offset any benefit of an early payoff.

If you're age 59½ or older, letting the money stay in your account and continue to grow can still be a better option if your rate of return is higher than the interest rate you're paying on your mortgage.

And remember that taking a large withdrawal to pay off your mortgage could catapult you into a higher tax bracket.

We're here to help

Talk with one of our investment specialists

Monday through Friday
8 a.m. to 8 p.m., Eastern time

We're here to help

Talk with one of our investment specialists

Monday through Friday
8 a.m. to 8 p.m., Eastern time

College loans

Despite drawing close to retirement, people age 62 and over now comprise the fastest-growing segment when it comes to taking out loans for education. On average, they carry almost $29,324* in college debt either for themselves or for their children.

Good idea? Probably not. Student loans generally can't be discharged even in bankruptcy, and up to 15% of your Social Security payments could be garnished if you fall behind on student debt.

And remember that unlike mortgage interest, interest on student debt may not be tax-deductible.

The best strategy is to take out loans only if they're scheduled to be paid off before you retire. But if that's not possible, what should you do? As with a mortgage, think carefully before withdrawing money to pay off debt in a lump sum, especially if you're under age 59½.

On the other hand, using some of your income to make extra student loan payments before you retire can be a good move—if you're paying a higher interest rate than what you expect your retirement investments to return.

Other debt

Other types of debt—personal loans, credit cards, and auto loans, for example—tend to have higher interest rates and lack any potential tax benefits.

These kinds of debt should "retire" before you do, because they can eat into your savings and reduce your standard of living.

For example, if your monthly retirement budget includes a $400 car payment and $600 credit card payment, you'll obviously be able to spend $1,000 a month less than someone without those bills for, let's say, the first 5 years of retirement.

If you instead keep working another two years and put an extra $25,000 toward your debt, you could retire without having to worry about making these payments—saving yourself about $11,000 in interest and gaining a spending cushion of $12,000 every year.

Paying off debt now equals more flexibility later

This hypothetical illustration assumes an auto loan balance of $22,000 and an interest rate of 4%, a credit card balance of $22,000 and an interest rate of 21%, and that you make additional debt payments of $12,500 per year.

Read chart description


The last few years before retirement are critical to reaching your goal. We can tell you whether you're doing the right things.

Get your retirement plan

Where does retirement fit into your priorities?

See how to juggle multiple financial goals


Vanguard research

Get more from Vanguard. Call 1-855-850-6972 to speak with an investment professional.

*Source: NerdWallet, 2023.

All investing is subject to risk, including the possible loss of the money you invest.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.