5 Things to Do Right Now for a Debt Free Retirement
Lots of people have thoughts of the ideal retirement in the back of their minds. Being able to save enough to live comfortably can be important for a peaceful and prosperous future. Whether you have several years until retirement or you’re already there, if you haven’t already, today is the best day to start working toward a debt-free retirement. Here’s what you can do right now.
Make Double Mortgage Payments
The point of being debt free during retirement is to eliminate stress, accumulate assets and enjoy life. Start by tackling the biggest debt you have, which is probably your mortgage. Not having a huge debt load by way of a big mortgage payment can open up travel options or the financial space to do things you want to do. Ideally, double payments should be made if possible, but any amount applied to the principal goes a long way toward paying it all off before retirement. Achieve this by:
- Making one extra payment each year
- Adding a few more dollars to your house payment each month
- Applying a substantial amount to the principal when you have extra cash flow like an inheritance or bonus
Note: By no means should you double your payments if it leaves you short on paying household bills or you don’t already have an emergency savings account in place.
Cut Back on Lavish Expenses
Receive a big tax refund? It may be tempting to go on a vacation or buy the family a new wardrobe. But it’s important to take care of necessities first and then apply extra money toward any outstanding debt. Tackle low-balance high-interest credit cards first. What’s left over can pay down larger-balance cards and other debts until they are all gone.
Chisel Away at Paying off Your Vehicle
Vehicle payments are often affordable but if you look closely at the loan terms, the principle and interest are obviously spread out for several months or even years. This interest accumulates over time, costing more out-of-pocket than many realize. To help become debt free, pay down vehicle loans as soon as possible. Put some extra cash into routine auto maintenance costs and upgrades that will make the car last longer. Hopefully, the soon-to-be-paid-off vehicle will stay in good condition for years to come.
Avoid Accumulating More Debt
The last thing anyone planning for retirement should do is take out a new credit card or second mortgage. Not only is it more debt to pay off, but it can seriously impact credit scores and make it harder to get a future loan because of a maximum debt load. Try instead to utilize funds from savings.
While avoiding debt may be unpreventable in some cases such as medical emergencies or unforeseen home repairs, dipping into savings regularly can be damaging. This could trigger falling behind on bills and eventually taking out a new loan to get caught up so planning ahead is important. If you must take out a loan, start with a local bank where rates are often the lowest.
Build Up a Retirement Savings
One of the best things to start doing today is to begin depositing money into a savings account for retirement. Here are some options:
- 401k matched by your employer
- Simple IRA
- Roth IRA
People who are self-employed should consider:
- SEP IRA
- Solo 401k
Set these up through a financial advisor who can go over all of your options and help suggest a contribution amount that will achieve the best return. Another way to build savings, is to start utilizing an HSA or health savings account to set aside money for future medical expenses.
Don’t wait until retirement to scramble for ways to pay off large bills and debt. Tackle it now so you don’t have to worry about it in the future. The best part of retirement can be living your best life, stress-free, with the freedom to do what makes you happy.
~Here’s to Your Financial Health