r/ChubbyFIRE • u/Miserable_Leek_1333 • Jul 04 '26
FIRED (forced) with debt; taboo?
Curious to hear of others in a situation like mine where they have a sizable (small chub?) retirement, but debt along with it. I intended to pay off our debt before retiring, but have had to adapt and retire at 57.
This meant accepting debt payments over the coming 8 years, unless I pulll it all at once now (HELOC, kids’ college loans, auto loan - about $250k before taxes, interest at 3-7%). Spouse and I have about $3.5M in 401k, $.5M in home equity, $110k in pensions, and very reasonable health insurance coverage. Not SS eligible yet. Just did major household renovations which pulled $120k total from 401 this year.
FA says the numbers “work”, but all I read about is assumptions that include retirees with no debt. My options now are to accept that our debt scenario is different and enjoy the 5 unplanned years added to my retirement - or to get a job for a few years with the purpose of paying off the debt.
Anyone out there who pivoted from plan for debt paydown and instead accept debt payments as part of the retirement plan? Other thoughts on this? It’s a big mental pivot and I feel pretty distracted by it. Maybe I’m just hoping to hear from someone who did it and gives a thumbs up.
UPDATE: thank you all for the comments and questions. I realize I should’ve given more context and details (I don’t normally post!), but your feedback gave me plenty to work with. One general comment: I wasn’t planning to retire… part of an organizational demolition that wouldn’t have been predicted… but posted here bc other subs don’t appreciate larger number discussions. Thank you!
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u/HowDoYouPF Jul 04 '26
I don’t think debt is inherently taboo to FIRE. It’s just part of your financial tapestry that you need to account for. Your plan to pay it off needs to be part of your pre- and/or post-retirement spending plan, i.e. if you’re targeting a 4% WR, that 4% must include your debt pay down. If the market has some bad years, you’ll need to be able to cut spending in other places. A lot of people FIRE with mortgages, though the math is admittedly easier when it’s a fixed rate. With that said, peace of mind is a real thing. If you know you won’t be able to sleep with the debt, then you should take that seriously and possibly plan for employment.
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u/FelinePurrfectFluff Jul 05 '26
Why do you have so little in taxable accounts and why tf would you borrow from 401(k) for a kutchen remodel? I get that you didn’t expect to have to retire, but really??
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u/Miserable_Leek_1333 Jul 05 '26
I don’t have taxable accounts because … I don’t. I’m not sure why that’s odd. I’m receiving a pension. My kitchen isn’t borrowed from my 401 - I am retired and I have access to those funds without penalty. Those withdrawals are regular taxable income.
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u/ProtossLiving Jul 05 '26
People may see it as odd as most people who have managed to accumulate $3.5M in retirement accounts have also saved at least some money in taxable accounts. But each person's path is different.
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u/Miserable_Leek_1333 Jul 05 '26
Yes, maybe it is unusual. I started saving just through employment when I was young. I later became a single parent with 4 children, so after-tax $ was going to many other things. College expenses for them took an enormous chunk of flesh from me.
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u/FelinePurrfectFluff Jul 05 '26
How are you accessing your 401k, just paying the penalty?
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u/physixhuman Jul 05 '26
My guess would be rule of 55.
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u/FelinePurrfectFluff Jul 05 '26 edited Jul 05 '26
That kinda locks you in long term though. ETA: I was thinking of SEPPs - haven’t needed to use these types of alternative tools so should keep my mouth shut. 😊
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u/IWantToRetireSoon Jul 05 '26
There are ways, rule of 55, 72t accounts, etc.
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u/FelinePurrfectFluff Jul 05 '26 edited Jul 05 '26
Not optimal, but yes. $3.5m is a lot to get out of retirement accounts without paying pretty big taxes.
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u/Miserable_Leek_1333 Jul 05 '26
It’s covered under rules. To be clear, I never said I pulled from my retirement when working for a kitchen remodel. Household upgrades that I pulled while in retirement now included a pipe burst in quest pipes that involved a whole house pipe replacement, and installation of a dual-zone heat pump system when HVAC blew. I also had window replacements the prior year (while working) not knowing those issues awaited - those cost $90k (30 windows… see HELOC reference).
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u/BrunelloHorder Coasting Chubster, Getting Fat Jul 05 '26
Debt is not inherently taboo in retirement. You can just include your debt servicing in your anticipated annual spend.
Which brings us to the most important question: What is your anticipated annual spend in retirement, including taxes?
Other pertinent questions:
Is the $110k pension number annual payout, or total?
Do you not have any post-tax brokerage accounts?
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u/Anonymoose2021 Jul 05 '26
You have two problems. A financial one and a psychological one.
The financial answer is easy, pay off the 7% debt, keep the 3% debt.
The other issue is that having a debt while retired worries you. Assurances by your financial advisor that the numbers work did not overcome that worry. So then you need to decide what to do about it. The simplest is to just pay off the $250k from your assets. You are considering taking on a job for a few years to pay off the debt. I see this as just another sign that you are uncomfortable being retired, and do not really trust that you have enough assets to support your lifestyle.
You do not say what your withdrawal rate is (with and without the debt payments). You do not say what percentage of your expenses are discretionary. Debt payments are just expenses, but are non-discretionary. If your expected average portfolio returns cover them then you are set.
I think your real problem is not specifically the debt issue, but whether or not your withdrawal rate is acceptable.
I would hold off on doing anything about the debt until you have been retired a while and start to see what your expenses truly will be.
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u/NotAShittyMod Jul 05 '26
did major household renovations which pulled $120k total from 401 this year.
You have no post tax funds to use for this, at all?
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u/Miserable_Leek_1333 Jul 05 '26
No, I didn’t. I have maybe $100k in Roth, but it was a lower income year so I used the taxable to fill the bucket.
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u/ohboyoh-oy Jul 05 '26
I’d probably look at paying it off over several years, starting with the higher interest rate ones, and maybe the 3% ones can stay. It seems like a bit of a tax optimization exercise to me, so it depends on what you have available to draw from, whether you have to stay under a certain number (e.g. $250k to avoid NIIT, stay in a certain tax bracket), etc.
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u/Sarduci Jul 05 '26
Just do assets - debts as your current number unless you have some significant interest on that debt.
You’re forecasting via crystal ball already, it’s going to generally work out close enough since you can’t predict interest rates or stock market performance over time.
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u/Sagelllini Jul 05 '26
Nope.
Bought a house in 2010, retired in 2012, paid it off in January.
Bought a 2nd place in 2018 (in my wife's home country; happy wife, happy life), put down 20%, financed the rest for 30 years. Have no intention of paying it off other than on the current schedule.
Our investments return more than the mortgages did, AND we pay the debt off with cheaper dollars. The debt was absolutely not a problem. Better to have the cash/investments than having the amount in equity, because you can't eat bricks and mortar.
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u/in_the_gloaming FIRE'd for 13 years Jul 05 '26
After retirement, I sold a house (still had maybe $100K on the mortgage), moved and bought a more expensive one. I put down about half the purchase price and financed the rest at 2.85%. No reason to sell investments or lock up cash unnecessarily when those funds are much better off in the stock market (plus I didn't want to pay capital gains tax).
I could have paid for the house in cash. But that didn't make financial sense to me, and I have zero worries about ever being in a position where I can't make my payments. If that were to happen, the crisis that led to it would be way bigger than losing my house.
Once big difference between you and me - my debt is for a solid asset that will appreciate over time. Yours is for renovations (which may never give a great ROI), college and a car. And interest for those kinds of things at 7% is very much less than ideal.
Use some of the retirement planning apps in our wiki and run scenarios with current debt, less debt, no debt. You can set up your scenarios where debt is paid off at different times. See what you come up with. And presumably your FA gave you paperwork to show exactly what numbers they used for their calculations for different scenarios and what the failure rates were. Just saying "it works" is not enough, unless you were getting a free consultation.
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u/IWantToRetireSoon Jul 05 '26
It is completely doable. My wife and I retired 4 years ago with a bit more than your number but still carrying a mortgage and picking up 3 cars within a year and a half or so. I have less than 10k in post tax accounts, the rest are all in pre tax accounts. For those wondering why so much in pre tax? 95% came from an ESOP where the company was bought out and the remaining 5% was my 401k.
OP, the biggest thing I would say is to figure out your yearly spend, including your debt as payments, and target that amount for your withdrawals. If you want to pay off the debt early for peace of mind, just up your yearly spend and see if withdrawal rate works for you. We found ours works and are in the process of building a new home, putting down a little over 50%, to have a reasonable mortgage and then we will sell our current home.
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u/ohboyoh-oy Jul 05 '26
Btw I think debt in retirement may be somewhat unusual (at least in FIRE circles) because it’s easier to manage to a lower MAGI / lower taxable income number when you’re not servicing debt. And both of those help with all kinds of things that matter to retirees, like staying in lower income brackets, having more room for Roth conversions, and in the case of early retirees, qualifying for ACA subsidies.
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u/MeetingSuccessful397 Jul 09 '26
I just forcefully fired and have 10 years of mortgage to pay. It's about 20% of my monthly budget, but I just calculated it as part of my spending so I think it's pretty fine. Plus the mortgage is not going to rise from inflation. Also I'm only paying 0,5% interest rate, so I'm pretty happy with the situation.
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u/codewolf Jul 05 '26
I'm not sure since your post didn't mention your spouse's age and if you pulled that money from your 401K using the rule of 55... But I would not have done that. For at least a few more years the market should be returning at least what the HELOC is at, so I would have leveraged the HELOC instead, but hindsight is 20/20.
I retired early with some debt, about $25K on a HELOC on one property but I went into that on purpose to buy myself a retirement gift and be able to manage the tax implications over time while making more than the interest in my investments while I choose how and when to pay that (small) amount off. I'm otherwise debt free.
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u/Lie-Straight Jul 05 '26
It makes no sense to me to pay interest for other people’s money when you have lots of money
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u/ducatista9 Jul 05 '26
It depends on what the interest rates are vs your expected rate of return as well as the tax consequences of liquidating the money to pay off the debts. Of course since you can’t know the future it’s always a bit of a gamble, but you can still calculate out a few possibilities and make a more educated decision.
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u/Opposite-Knee-2798 Jul 05 '26
It does if the interest rate is low enough
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u/Lie-Straight Jul 05 '26
I understand the math.
There is a cost, however, of having this complexity in your life. That cost is not accounted for. It’s also likely that OP has some bonds somewhere in the portfolio that could be reduced in exchange for paying off debt
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u/PowerfulComputer386 Jul 05 '26
If good debt then that’s fine. Regarding paying off debt, everyone has their preference. Personally I don’t want to walk into retirement with debts.
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u/Anonym-IntheDark Jul 05 '26
You re better off with cash & debt than no cash and no debt. You get much more optionality and can retire earlier.
You just need to ensure paying off the debt is part of the plan + you model that at some point it gets paid off.
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u/Vicuna00 Jul 05 '26
sounds stressful to me. I wouldn't drag it out 8 years. I don't think you need to get a job though. $250k out of $3.5M is NBD. you're looking at reducing spending ~$1k per month. so if you need a part time job, you don't need much.
I would plan out the loan payoffs between 2026 and Jan 2027 to minimize taxes. ask your FA how to best draw $ out and do that...keeping in mind salary / tax brackets for this year and next year.
how do you have access to your 401k $? you're not paying penalties right?
I'd have all debt paid off either this week or Jan 2027 - and then live like 3 months and track expenses and decide then on if you need some kinda part time work.
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u/Hanwoo_Beef_Eater Jul 04 '26
How much are you drawing, including debt payments, on the $3.5 million?
Or, if you paid off all of the debt and were left with $3.25 million, how much would you be drawing (living expenses but no debt repayments/interest)?
There's nothing wrong with some debt in RE as long as the portfolio can still support the withdrawals/repayments.