Hanging your hat up at the end of a fruitful career has always been part of the American dream. But research on how much we’re saving for retirement shows it really is just that – a dream.
Why? The report doesn’t confirm. However, a white paper from the National Bureau of Economic Research points to debt as a major factor why Americans near retirement age can’t confidently stop working.
Fifty-five percent of Americans 55-64 carry a home mortgage, the study says, and 50 percent have credit card debt.
What can Americans do then to reduce all this debt so they have more money for retirement? Click or swipe through to read seven strategies to help make it happen…
Click here to sign up for our free financial education email course.
1. Assess debt and spending
When tackling debt, you have to know where you stand. Assess how much debt you have, what it costs in terms of interest payments and monthly charges, and what you spend each month.
Use a spreadsheet or budgeting software to create and manage this assessment.
2. Start saving for retirement first
Waiting to start your retirement savings until you finish paying off debt can cost you more in the long run. It’s better to start funneling money into a retirement account now. That’s because the longer you delay saving for retirement, the more you’ll have to save to reach the same amount later in life.
You’ll save more toward retirement thanks to compound interest. Also, you’ll be able to reap greater tax breaks by shifting some of that hard-earned money into a retirement account rather than forking it over to the government.
Find out: How to Save for Retirement.
3. Kill toxic debt now
Toxic debt is any debt you have that has such a high interest rate that you aren’t really getting anywhere with your payments. This type of debt includes payday loans and many types of credit cards.
While contributing to your retirement account, you should also allocate larger monthly payments to kill this toxic debt. Make sure your payment is at least double the minimum monthly payment amount to start making headway with reducing this toxic debt.
4. Create an emergency fund
While it may seem challenging to create another account to put extra money in, try to start an emergency fund, too.
By doing so, you’ll be able to tap this account to pay for unexpected costs rather than relying on your credit cards and adding to your debt load.
5. Refinance your mortgage
For those who are younger and have some time to pay off their mortgage, a refinance can save a significant amount of money through lowering their interest rate and monthly payments. This money can be put aside for retirement and debt repayment.
Some refinances also allow for equity to be taken out in the form of a cash payment that can be used to reduce or eliminate credit card debt. Going forward, all the money that would have been applied to the mortgage and these debts can go toward retirement. Just be sure to follow this plan if you are taking equity out rather than spending it frivolously.
Find out: When Should I Refinance My Mortgage?
6. Consider a reverse mortgage
If you’re older, close to retirement, and a homeowner without the savings you need for retirement, a reverse mortgage may be the answer. You must be over the age of 62 to qualify.
While you have to continue paying property taxes and homeowners’ insurance, a reverse mortgage gives you money from your lender that you can use to pay off other debt and cover your expenses.
Before getting started, be sure to check with a financial advisor to make sure this is the right move for you. It’s important to learn about any risks or issues that might arise with a reverse mortgage.
Find out: Money Management for Seniors.
7. Be more disciplined
While it’s easier said than done, you’ll need to change your mindset about spending. That means scaling down vacation plans and purchases for the holidays. You’ll need to lower your gift-giving budget, reduce trips to restaurants and rethink all those Amazon Prime deliveries.
If you can’t pay for something in full, then you probably shouldn’t buy it right now. When you can, save up and pay in full at a later date.
8. Think long term
After years of working, the last thing you want to do is to work past the typical retirement age. Instead, try to look at the long-term picture to plan the retirement you want to enjoy.
Amanda Williams: I think you have to do a mix of both, definitely getting out debt, getting on a budget, fixing your past debt mistakes so that you really free up that income to be able to save more for the future. But you also need to have an emergency fund in place. In case anything goes wrong, so you’re not running back to your credit cards.
Leslie H. Tayne: So, I really think you need to consider a combination of the two because past financial mistakes will impact your future, so you definitely want to take a look at what you’ve done in the past. Perhaps, there’s a pattern that you want to change, that ended you up in the situation that you’re in. And Perhaps part of that pattern wasn’t saving properly for the future. So, you definitely want to take a look at the past as a lesson to learn what not to do but also look at some of the things that you did do, that were successful and implement them going forward.
Lance Davis: Preparing for retirement is a necessity and you definitely don’t want to be 80 years old and broke so, a balancing between the two.
Vee Weir: Because interest rates are stealing from you what you could in retirement.
Brian Bandow: I think for people currently in debt, in there you know, 30s or 40s. There’s a lot of variables so it really depends on their current situation and how much debt they have. I’d like to think if you focus on paying off debt, you can get that done hopefully quickly.
Chelsea Brennan: Make sure that your high interest debt is payed off because you’re never going to make that up in the market.
Paul Curley: I think it’s important to first, have an emergency fund. Make sure that you have that buffer so that you’re not constantly getting hit and put into debt.