How Debt Impacts Your Retirement Plans
The saga of adult children moving in with their retired parents has been the subject of sitcoms, movies, and TV commercials for years now. But in real life, it’s not that amusing. Did you know that taking care of grown children is one of the main causes of debt for Baby Boomers? Roughly two-thirds of people reaching retirement age today help out their adult children (and grandkids) which can be difficult if you’re trying to save for retirement.
Most Americans carry some type of debt, whether it is credit cards, car loans, student loans, etc. The average age when people start seriously thinking about retiring is between 56-61 and about 42% have debt of around $17,000, with most of it being credit card balances. And while it’s admirable to help family members, you need to factor in how much it could be adding to your debt and affecting your income planning for your golden years.
Create a Plan for Paying Down Debts
Paying off credit cards is wise, but you need to strike a balance between whittling away debt and saving for retirement; too many pre-retirees focus on the former at the expense of the latter. However, you can do both. Here are some tips to help you reduce debt and at the same time, accumulate savings.
- Build an emergency fund. The general guideline is to save 4-6 months of salary. Most people balk at that figure, but it’s easier than you think and certainly not impossible. Start with small amounts, say $10 a week.
- Pay off high-interest debt first. The average credit card rate is hovering around 16.8%. A good place to start is by looking at the interest rates on your credit cards. Get rid of the balances with the highest interest first, then put that money towards more manageable balances until everything is paid off.
- Take advantage of workplace retirement plans. Don’t leave “free money” on the table. Many companies have 401(k) matching programs. With compound interest, you can build up a sizeable nest egg.
Have Questions About Your Retirement Plan?
If you are thinking about retirement, have debt and are perhaps pitching in to help other family members, give us a call. At Safe Harbor, we take a holistic approach to debt management and retirement planning. We’ll look at your overall debt and discuss your retirement goals. To schedule a complementary review of your portfolio, give us a call at 614-760-0670.