Investor Alert

Dec. 3, 2019, 7:33 a.m. EST

Kevin O’Leary says you need to have all your debts paid off by age 45 — including your mortgage

This is a significant hurdle on the road to financial freedom

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By Mitch Tuchman

Priscilla Grant/Everett Collection

“Shark Tank” star Kevin O’Leary knows how startup businesses succeed — or fail.

Most businesses make it past that crucial first year by finding investors while controlling costs tooth and nail.

If only retirement investment advice had that same approach.

“If you want to find financial freedom, you need to retire all debt — and yes that includes your mortgage,” O’Leary told CNBC /zigman2/quotes/209472081/composite CMCSA -0.14% .

Your personal break-even, that moment where, like a business, you’re going to thrive or fail, is age 45, he says.

By then, O’Leary warns, you should be debt-free. No mortgage, no credit cards, no student loans.

It’s a tall order. Huge numbers of baby boomers are hitting 65, an estimated 10,000 of them a day. Many are leaving work, too, by choice or not.

And many of them, unfortunately, carry debt into retirement.

Debt free

The problem, as O’Leary explains, is that debts compound. It’s extremely hard to manage a growing debt load on a fixed income that does not grow.

He didn’t pick age 45 by chance. Even good savers need two decades of investment compounding to retire on their own terms.

Paying down debts past 45 will mean less money growing in your retirement savings and more paid out to cover outstanding liabilities.

Look, I know it’s extremely hard to just be debt free. But O’Leary’s point is well-taken. You can’t grow money prudently if your debts grow faster.

That’s a key financial concept that many folks simply don’t grasp. It’s a rare investment that grows faster than the economy and inflation.

But most debts absolutely grow faster — some much faster.

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