Pay up what you owe now to enjoy your golden years later.
Pay up what you owe now to enjoy your golden years later.
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.
The average working American has no retirement savings, says a report from nonprofit research organization the National Institute on Retirement Security. [1] More than 100 million working Americans don’t have retirement account assets.
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. [2]
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…
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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.
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.
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.
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.
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?
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.
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.
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.
This article by John Boitnott was originally published on Debt.com.
Published by Debt.com, LLC
