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Plan now for a debt-free retirement

Are you worried about getting a handle on debt as you near retirement? In addition to adding to your cost of living, excess debt during your working years can keep you from setting aside enough retirement funds to nurture your nest egg. Here's some ideas to consider on how to tame debt before it gets the best of you.

Live within your means

Used responsibly, debt can let you enjoy a better lifestyle and provide for your family. But when your monthly loan payments start to consume funds that you should be directing towards retirement, you are likely living beyond your means.

Take a close look at how you choose to use debt. Consider options that let you pay cash or borrow less, then contribute the money you would have put toward loan payments into a retirement account.

Manage current debt

Most of us have a number of loans of various sizes and rates of interest — up to 30 percent for some credit card debt. Even if you have a variety of loans, you may be able to reduce your monthly payments using a few simple strategies:

  • Shop for loans. Don't assume the car dealer (or appliance store) is offering the best rate. You may do better by comparing loans from several sources.
  • Consolidate your loans. Keep an eye on interest rates. If they fall, you may be able to combine several loans into a single, larger loan with a lower interest rate.
  • Pay off loans early. If your savings account is paying 0.5 percent interest and your credit card is charging 14 percent, it may make sense to pay off loans that have a higher interest rate first.

Savings strategies

Successful savers know that one of the best ways to grow your retirement savings is to make a plan for regular contributions to a retirement account. Here are some ways savings may help you today and tomorrow:

  • Use different accounts for short-term and long-term goals.
  • Sign up for automatic contributions into your employer's retirement plan. Then contribute the maximum needed to receive the full employer match if one is offered.
  • Set up a Roth IRA, a retirement account that may provide you with tax-free income when you retire.
  • Review your retirement savings rate at age 50. The IRS allows "catch-up" contributions to IRAs and other retirement plans to allow you to save (and deduct) more.

By following these strategies, you'll soon find that minimal sacrifice needed to help make your short-term goals and long-range dreams come true.

Take the next step

Increase how much you're saving. A small step today may make a big difference in the future.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

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