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By the time you retire, you may have paid off your mortgage, cars, and credit cards. You may have saved enough to support yourself throughout retirement. And perhaps it seems unlikely you’ll ever borrow money again.
That means you can finally ignore all the articles, news stories, and advertisements that exhort you to monitor your credit. Right?
Maybe not.
“Retirees need a good credit score because they’ve retired from their jobs, not their lives,” said Howard Dvorkin, CPA and chairman of Debt.com.
Here are a few reasons it may be worth keeping your credit score up in retirement.
Moving house or buying a vacation home
If you’re like many people, you may want to retire right where you are. But you might change your mind if your circumstances change.
For example, hypothetically, you could…
- Get divorced or become widowed.
- Decide to move to a 55-plus community.
- Say yes when your daughter asks you to move nearby to help her care for your special-needs grandchild.
- Decide to upsize in retirement to make space for a live-in caretaker.
- Want to move to a continuing care community so your spouse can get Alzheimer’s support.
- See the appeal in buying a second home to spend more time at a favorite destination with your family.
These changes won’t necessarily mean you need to borrow money.
“Retired home buyers and sellers typically own real estate that they have lived in for many years and use proceeds from a home sale to purchase or subsidize their next property,” said Diana Sutherlin, an agent at Compass Real Estate in Jersey City, New Jersey. “Generally, in my experience, retired home buyers avoid new debt and try to keep their monthly costs low.”
But what if you do need additional funds for your next home?
Tapping savings may not make sense. Market conditions could make it a bad time to sell investments. Withdrawing a lump sum from a traditional IRA or 401(k) could push you into a higher tax bracket, increase your Medicare premiums, and trigger the net investment income tax. (Learn more: Retiring into a bear market)
So it might be more financially advantageous to get a mortgage in retirement. And that’s when your credit score becomes crucial.
“Getting the best rate available is only possible if you have a good credit history, and that applies to all age groups,” Sutherlin said.
You may also need good credit for assisted living: the facility may check yours before approving your application and offering you a room. The same is true for any other housing you might rent. Many landlords won’t offer a lease to someone with a low score or no score. (See: Why renting may be a better option for some retirees)
Buying a new vehicle
No matter how new, reliable, or well-maintained your cars are, they may not be with you as long as you hope.
“One retired couple told me their two cars would last them the rest of their lives,” Dvorkin said. “Months apart, one was wrecked beyond the cost of repair in a fender bender while the other had a busted transmission that effectively totaled the vehicle.”
Auto insurance may help reimburse losses from accidents. While you may get a fair settlement to replace your totaled car, you may not be able to find another car you like for that price.
Even if your cars remain reliable, changes to your health, strength, and mobility might mean you one day need a more accessible vehicle. It’s hard to climb into a pickup truck with Parkinson’s disease or a bad hip.
As with other large purchases, taking a retirement distribution to pay cash for a replacement vehicle might be costly from a tax and investment perspective. Plus, accepting a dealership’s financing offer may ease price negotiations.
Getting the best home and auto insurance rates
Retiring doesn’t change your need for auto, homeowners, or renters insurance. In almost every state, home and auto insurers use your credit-based insurance score to gauge how likely you are to file a claim.
The idea is that people with good credit are likely to maintain their homes and vehicles and less likely to be sued. Insurers won’t spend as much on property damage or personal liability claims for these clients, so they charge them lower premiums.
If your credit goes stale, insurers may define your risk as “average,” someone with a credit score of 580 to 669. You could pay hundreds of dollars more for coverage.
By regularly using credit and maintaining a score of 670 or higher, you’ll be rated as good (670–739), excellent (740–799), or exceptional (800–850). With each higher tier, your premiums may decrease significantly.
Conclusion
These are some of the bigger reasons to maintain your credit score throughout retirement. Smaller reasons exist, too, such as signing up for a postpaid phone plan, starting utility service in a new home, or qualifying for the best travel credit cards.
While maintaining good credit can be a chore, it’s an important part of personal financial management that doesn’t go away when you retire.
Discover more from MassMutual…
How to prevent debt from ruining retirement
Planning for your old age … while still of sound mind
How applying for a new credit card can affect your score
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