Good Debt vs. Bad Debt in Retirement: What Is Worth Borrowing After 60

Four tests. Debt that passes all four is usually reasonable, even for a household that could pay cash. Debt that fails any one of them deserves a second look.

1. It costs less than the alternative. Compare the interest with what the money would cost to raise another way: the extra tax on an IRA withdrawal, the capital gains tax on a sale, or the return you give up by spending cash. A loan at 8% can be cheaper than a withdrawal that pushes you into a higher bracket and a Medicare surcharge.
2. The cost is fixed or capped. A variable rate turns a known expense into an open one, paid from a fixed income. Home equity lines, portfolio lines and most private loans are variable.
3. It ends on a date you can name. A loan you plan to clear in two years is a bridge. A balance with no end date tends to become permanent, and its interest becomes part of your spending.
4. A survivor could carry it. When one spouse dies, one Social Security check stops and some pensions shrink, but the payment stays the same. If the survivor could not comfortably make it on one income, the debt is a risk to the person you most want to protect.

The answer depends on what the other sources cost, so price them side by side. Ellen, 68, and Mark, 70, are retired. Two Social Security checks, Mark's pension and their usual IRA withdrawals give them adjusted gross income of about $170,000, which puts their next dollar of income in the 22% bracket. They hold $1.6 million in IRAs, $700,000 in a taxable account, mostly an index fund bought in the 1990s with a cost basis of about a quarter of its value, and $90,000 in cash that is their reserve for a down market.

This year they need $60,000: a new roof and a replacement car. They do not want to spend the reserve. Here is what each way of raising the money costs, beyond the $60,000 itself:

The single IRA withdrawal is costly for reasons that have nothing to do with debt. To net $60,000, they must take out $79,691, which lifts their income to about $249,691. Part of it is taxed at 24%, it wipes out almost all of their 2026 senior deduction, and it crosses the $218,000 threshold for married couples, so two years later both pay higher Medicare Part B and Part D premiums: $2,297 for the year. Splitting the withdrawal between December and January keeps each year's income near $209,809, under the threshold, and cuts the extra cost to $2,102.

Three years of borrowing costs more than splitting the withdrawal. The home equity line costs $7,687 of interest over 36 months, about $1,880 a month, and the payments still have to come from income that is taxed. For a household whose spending money comes from an IRA, a long loan rarely beats a well-timed withdrawal. The loan that does earn its keep is short: if the roofer must be paid in December, drawing $30,000 on the line for 2 months until the January withdrawal costs about $400 of interest. That is good debt by every test above.

Selling shares is the closest call. The $7,938 of tax on the $45,000 gain is close to the home equity line's interest. The sale also brings their income to $215,000, just $3,000 under the IRMAA threshold, so a slightly larger sale would add a surcharge. But the tax is avoidable in a way the interest is not. If Ellen and Mark expect to leave the index fund to their children, its cost basis steps up to its value at death (IRS Publication 551), and the gain is never taxed. Spending other money and keeping the shares means the $7,938 is never paid.

Their plan: half the money from the IRA in December and half in January, with a small draw on the home equity line to pay the roofer on time, cleared in January. The car is bought with 0% dealer financing if it is offered; otherwise the second withdrawal covers it. They keep the reserve and the index fund intact.

A low-rate fixed mortgage usually is. It has a known payment, a known end date and a rate that may be below what cash and short-term Treasuries pay. Keeping it leaves money invested and available, which matters more in retirement than before, because you cannot borrow against a paycheck you no longer earn. Pay it off early when the payment forces a withdrawal rate you are uncomfortable with, when the rate is high, or when the survivor test fails. The mortgage payoff calculator compares paying it down with investing the difference.

Do not count on a tax benefit. Mortgage interest reduces tax only if you itemize, and home equity interest is deductible only if the money bought, built or substantially improved the home securing the loan (IRS Publication 936). In 2026 a married couple who are both 65 or older have a standard deduction of $35,500, plus the senior deduction, so most retirees with small mortgages get no tax benefit from the interest at all.

Taking on a new mortgage can also be reasonable, for example when you buy a smaller home before the old one sells, or want to keep cash instead of paying all of it for the new house. Many lenders can qualify a retiree on savings rather than wages, through programs often called asset depletion or asset dissipation, which count part of your accounts as income. And a mortgage does not have to be cleared when you die: federal law bars lenders from calling the loan due when a home passes to a relative after the borrower's death (12 U.S.C. 1701j-3).

A reverse mortgage is a different instrument. A HECM is available from age 62, needs no monthly payment, and is non-recourse: the heirs never owe more than the home is worth, and can keep it by paying the balance or 95% of the appraised value, whichever is less. The costs are high at the start, so it suits people who plan to stay. The guide to reverse mortgages and the reverse mortgage calculator cover it, and the downsizing guide compares it with selling.

Sometimes, in modest amounts, for the reason shown above: selling appreciated shares triggers tax that holding them until death avoids. A securities-based line of credit lets you borrow against a taxable account, usually at a variable rate set above a benchmark, and often with interest-only payments. Wealthy families have long used this pattern, sometimes called “buy, borrow, die”: borrow against assets instead of selling them, and let the estate repay the loan after the basis steps up.

The risk is the one that matters most in retirement: being forced to sell at the bottom. If the portfolio falls, the lender can demand more collateral or sell your holdings to cover the loan, often without waiting for you. Margin accounts must keep equity of at least 25% of the securities' value under FINRA rules, and many firms require more (FINRA Rule 4210); portfolio lines have their own, similar limits. A loan of 50% of a portfolio that then falls 35% can trigger exactly the sale you borrowed to avoid.

• Carried credit card balances. Card accounts that are charged interest were paying about 22% in 2026 (Federal Reserve G.19). No investment you own reliably earns that. Clear them first, from cash above the reserve if necessary; the guide to paying off debt near retirement covers the order.
• Loans for children and grandchildren. A co-signed private student loan, car loan or apartment lease is your debt if the borrower stops paying. Parent PLUS loans are in the parent's name outright, and a defaulted federal student loan can be collected by withholding up to 15% of your Social Security, leaving at least $750 a month (CFPB). If you want to help, a gift of a set amount is safer than a guarantee of an unknown one; the gifting guide covers the limits.
• Open-ended variable lines. A home equity line paid interest-only, with no plan to clear it, fails three of the four tests. Its rate floats, it has no end date, and when the draw period ends the payment can roughly double.
• High-cost personal, payday and title loans. Two-year personal loans from banks averaged around 12% in 2026 (Federal Reserve G.19), and finance-company and online rates run far higher. A retiree with savings almost never needs one.
• Debt to buy an investment someone is selling you. An adviser or acquaintance who suggests borrowing against your home or portfolio to buy an annuity, a private deal or a “guaranteed” product is a red flag in itself. The investment scam red flags guide lists the others.

They are paid from your estate before your heirs receive anything. If the estate cannot pay, the debts generally go unpaid; your children are not responsible unless they co-signed, held a joint account, or fall into one of a few other cases, and a surviving spouse can be liable for some debts in community property states (CFPB). Debts still reduce what you leave, and they create work: the executor has to notify each creditor and settle each account.

So list every debt in the file your family will use, with the lender, the account number, the balance, the rate and whether it is secured. Note which accounts are joint. The guide to the records your family will need covers the rest of that file, and the personal financial statement puts the whole picture on one page.