How Debt Will Affect Your Retirement
November 25, 2020
When you are approaching your retirement years, you may be focused on how much you have saved, and not how much you have in debt. But carrying debt into retirement can have a significant impact on your retirement lifestyle. Without a steady income stream from your job, you will be relying on the retirement income that you have saved, and debt payments will eat into that savings quickly.
How Debt Can Ruin Your Retirement Income
Carrying debt into retirement can impact you in a few ways. First, debt payments will take a portion of your monthly retirement income, leaving less to spend on healthcare, travel, or leisure. To make ends meet, you may end up drawing out of your retirement accounts faster than anticipated, which will put the later years of your retirement at risk, either because you will run out of savings, or because you will have to make significant lifestyle changes. If you are making minimum payments, the interest rate on your debt will be much more than any interest you are earning from your savings. It’s a precarious position to be in during your retirement years.
How to Balance Debt and Retirement Planning
Your goal should be to get out of debt before you retire. It’s ideal to have all debt paid off, but the most important debt to be cleared by retirement is “bad debt”, such as credit cards. If you know that you will have to carry some debt into retirement, it needs to be reflected in your retirement planning. Your retirement budget will need to have a line for debt repayment.
With the goal of getting out of debt before retirement, most Americans will need to balance debt and retirement planning. It isn’t smart to ignore one in favor of the other. You may need to make sacrifices during the end of your working years to get your debt paid off before your retirement date, or you may need to push your retirement later. No matter what your financial situation, speaking with a financial consultant who specializes in debt free solutions can help you come up with the best plan to balance both. A financial guide can take an objective look at your situation to come up with the best solution, and a step by step plan to get you there.
What is the Best Plan for Getting Out of Debt?
Getting out of debt doesn’t mean abandoning your retirement savings efforts, but depending on what kind of debt you are carrying, it may impact how you prioritize your money right now. Credit card debt should be attacked before anything else. There is virtually no good credit card debt. The interest is high and balances grow quickly. Many financial experts recommend the “snowball method” for getting out of debt, which involves attacking one loan at a time, starting with the smallest balance, and once that debt is paid off, applying that money to the next, until all of your debt is paid off. A financial consultant can help you decide where to focus your efforts and which debts you should attack first.
Your goal should be to enter your retirement years free from debt and with a monthly retirement income you can live on. Speaking with a financial consultant with retirement income planning experience can help you develop a plan. Safe Money Partners specializes in debt free, tax aware retirement income planning. Contact us today to learn more about our proven methods of financial success including a guided plan to become debt free for life.