Kevin O’Leary, whose net worth is estimated at around $400 million, might have become a well-known name through his role on the popular show Shark Tank, but he made his fortune by selling his software company and making savvy business deals and investments thereafter.

Given O’Leary’s success, it’s no surprise that people tend to listen when he offers financial advice. Although his advice can vary from topics like entrepreneurship to investing, he also offers bits of wisdom when it comes to retirement.

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One piece of retirement wisdom that O’Leary makes clear is that you should do everything in your power to ensure you don’t retire with debt.

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Having debt is a dangerous game to play

O’Leary talked about debt and retirement directly in his book Cold, Hard Truth on Men, Women & Money, saying, “Don’t retire until you can afford it. Throw out your plan for freedom at 55 or even 65.” That may be a tough message for those with early retirement ambitions, but it makes sense, especially considering how compound interest works with debt.

In investing, the power of compound growth can take small, consistent investments and, over time, turn them into large nest eggs. With debt, where the power of compounding is working against you, it can do the opposite, taking what may have originally been a relatively small amount of debt and turning it into a persistent financial burden.

That’s why O’Leary follows up his point, stating, “If you’re heading toward retirement with debt, now’s the time to budget like you’ve never budgeted before. I mean it.”

A key part of budgeting as you near retirement is finding the balance between how much you should dedicate to paying off debt versus how much you should put away and save for retirement. In most cases, as O’Leary seems to agree, paying off debt should be a priority because the interest that comes with it is guaranteed, while there’s no guarantee that you’ll make money on investments.

How much should you have saved for retirement?

It’s always tough to tell any specific person how much of a nest egg they’ll need to have when they’re heading into retirement because so many factors come into play. Someone retiring in Southern California will likely need more than someone retiring on the coast of the Carolinas; someone who plans to travel the world will likely need more than someone who plans to spend most of their time at home with family; and someone with large debts will need more than someone who’s debt free.

There are some baselines that you can use to help give you an idea of how much you’ll need. According to O’Leary, you should aim to have a portfolio and other sources of income sufficient to provide you annually in retirement with about 65% of your final working year’s income to maintain your previous lifestyle.

Going by that logic, here’s how much you should aim for based on your final working year’s income:

Table by author.

Of course, this is just a baseline, and you should adjust according to your situation. If you plan to downsize your lifestyle, your percentage can be less, and vice versa.

It’s also worth noting that the annual income needed can (and should) come from multiple sources, including Social Security — which brings me to my next point.

Social Security should be a supplement to your income, not your main source of income

Social Security is undoubtedly one of the most important social programs the U.S. offers; it provides a key financial lifeline for tens of millions of Americans. However, O’Leary notes that Social Security was never designed to be retirees’ only source of income.

Though it’s often not easy to manage, those with the ability to save and invest during their working years should certainly do so. The goal should be to have as many sources of retirement income as possible, because diversified income streams — whether from a 401(k), an IRA, or an ordinary, taxable brokerage account — can provide you with more financial stability and reduce your risk of outliving your money.

Going into retirement debt-free ensures you can keep more of your savings and income to yourself, versus paying it out in interest. If your plan is to enjoy your retirement to the fullest, that’s one way to do it.

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