Feb 5, 2015 Retirement Planning When You Are Debt Heavy
Student loan debt isn’t just a problem for Millennials in their 20s and early 30s anymore. According to an article by CNBC, senior citizens are debt heavy as well. An analysis by TransUnion shows student loan debt 10 years ago accounted for about 13 percent of total debt carried by people in their 20s. Today, that amount is almost 37 percent. Meanwhile, people 60 and older are seeing an increase in debt across the board. In addition to student loan debt, senior citizens carry more auto loans, mortgages and credit card debt. Whether you co-signed a student loan with a child or grandchildren or borrowed college loans for yourself to stay competitive in the job market, don’t let student loan debt overshadow retirement planning. If you are in your 50s and 60s, it’s not too late for last-minute retirement planning.
Tackle your bad debt
The first step to saving your retirement is to tackle your bad debt or any debt with a high interest rate. Most student loan debt doesn’t fall in this category since the interest rate is typically below 8 percent. However, any loan with a double digit interest rate needs to be eradicated before you can start adding more money to your retirement plans. If you already save a certain percentage for retirement, continue to do so as you get rid of bad debt.
Make catch-up contributions
Once you’ve tackled high-interest debt, take the money you were using to pay off high-interest credit cards or and other loans to make catch-up contributions to your IRA and 401(k) if you are age 50 or older. According to a piece on retirement savings strategies by Bankrate.com, catch- up contributions can make a big difference. Check with the IRS each year to get the most updated information about how much extra you can contribute for the tax year.
Don’t be afraid of risk
One of the riskiest things you can do with your money is to accumulate debt, especially at a high-interest rate. Taking risk by investing in the stock market shouldn’t scare you nearly as much as debt. By finding an experienced financial advisor or financial planner, you can take your emotions out of the equation. An advisor can guide you in retirement planning so you can replace at least 70 percent of your current income.
If you are an ultra-conservative investor, you may be rewarded the most by relying on a financial advisor who knows the market and can make modest moves up the risk spectrum. Other strategies include working longer, living with relatives to decrease expenses and moving to a less expensive area or downsizing. Ultimately, you want to enter retirement with a light debt load so you can enjoy your days.
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