Your debt-free retirement: A roadmap
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.
Tips for taming debt
Live within your means
Used responsibly, debt can allow you to enjoy a better lifestyle and provide for your family. But when your monthly debt 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 debt payments to a retirement account.
Managing current debt
Most of us have a number of debts of various sizes and rates of interest—up to 30% 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% interest and your credit card is charging 14%, it may make sense to pay off loans that have a higher interest rate before socking away savings.
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 to your employer's retirement plan, such as a 401(k) or 403(b) 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 only a minimal sacrifice is needed to help make your short-term goals and long-range dreams come true.