What are your retirement plans? You might dream of spending more time with your family, relaxing, taking up new hobbies, or going on the vacation of a lifetime. But if your retirement is approaching and you’re still struggling with debt, those dreams could be harder to achieve.
Retirement is expensive, but being in debt could make it downright impossible. The good news is that you could still plan for the retirement you’ve always wanted—even if you’re struggling with debt today. Here’s how you could plan for a debt-free retirement.*
Create a Retirement Budget
If you want to know how much you need to retire, creating a retirement budget is a good place to start. There are several online budgeting tools that could help you figure out how much you’ll need to save for the perfect retirement, but you could just as easily make a budget the old fashioned way.
To calculate your retirement budget, make a list of the expenses you have each month. This could include:
- Mortgages, property taxes, homeowners insurance, and utilities
- Food, clothing, and personal expenses
- Health care, insurance, and ongoing medical expenses
- Alimony and childcare costs
- Credit card debt, loan payments, and student loan debt
- Money you plan to spend on vacations, hobbies, entertainment, and any other miscellaneous expenses
Add all of these expenses up, and you’ll have a monthly retirement budget. According to The Motley Fool, average American retirees spend about $3,700 per month, totaling approximately $44,600 per year.
If this number seems overwhelming, it might ease your mind to know that the retirees received an average of $1,366 in Social Security benefits in April 2017—offsetting the amount they needed to save. Nevertheless, saving as much as you can before you retire is crucial.
Track Your Savings
Once you know how much you’ll need for retirement, you can make sure your retirement savings fits your budget. If you’ve invested in a 401(k), IRA, or another type of retirement asset, it’s important to keep track of how much you’ve saved.
If it turns out that you need to save more before retiring, you may need come up with a plan to accelerate your savings before you retire.
Eliminate Your High-Interest Debt
Making payments on high-interest debt can seriously eat away at your ability to save for retirement. So if you have debt from credit cards or loans, paying it off as quickly as possible could make saving for your retirement much easier.
It’s shocking to think of how many people retire with debt. The average credit card debt of people over 65 is a whopping $6,351. Imagine having to pay that much debt off on a fixed income.
Worse yet, credit card debt may actually push back your date of retirement if you want to save a certain amount before leaving the workforce. But working for longer could be a better option than struggling with high-interest debt when you’re retired.
If you’re struggling to make minimum payments on high-interest debt, it could take years to pay it off. If you’re wondering how to get out of debt faster, there are several options that could help, such as a debt settlement program like Freedom Debt Relief, which could be a good option if you’re experiencing a financial hardship and you want to pay off your debt faster and for less than you owe. After overcoming your debt, you could free up extra money and save for the retirement you’ve always wanted.
Protect Your Retirement Funds
You might be considering using your retirement funds to pay off your debt before you retire. That could be a huge mistake for two reasons. First, you could have to pay taxes for any money that you pull out of your 401(k) or IRA before retiring. And second, any money you pull out is money you’ll have to pay back in before you retire. So taking money out of your retirement to pay debt is a short-term solution that could hurt your long-term financial wellbeing.
Save Money Whenever You Can
Between medical bills, unexpected emergencies, and other expenses, retirement isn’t cheap. And since the amount of money you have available after you retire is limited, it’s important to have as many additional funds at your disposal as possible.
That’s why building up an emergency fund is crucial before you retire. One common mistake retirees make is not having enough money saved to cover an emergency. Then, they end up in debt all over again because they have to use credit cards or loans when an emergency happens. So the more money you can save before you retire, the better—even if you already have enough saved to have the retirement you’ve always wanted.
The best thing you can do before you retire is to make sure that you are completely debt-free. Any money you owe when you retire is money that you’ll have to pay on a fixed income, so it just doesn’t make sense to retire in debt. And the sooner you’re out of debt, the more you can save for your emergency fund.
If you want to learn more about getting out of debt, our Certified Debt Consultants could help. Give them a call, and they’ll explain debt relief options and help you decide which one is right for you—even if it isn’t the Freedom Debt Relief program.
*We are not financial or retirement planners – materials provided in this blog is general information – please consult a professional for further information or advice.