Heading into retirement, it would be wise to take a look at which debts to focus on before you exit the workforce for good. If not, you might find that the shackles of debt will inevitably catch up with you and put a damper on those golden years with heavy expenses you may not have planned for.
Between high unemployment numbers and a volatile market, many Americans may feel lthey should put their retirement contributions on pause, decrease their contributions, or even cash out some of their savings to make ends meet. But it turns out that for nearly one-third of Americans, this wasn’t the case.
A survey of retirement plan participants conducted in late 2020 found that 31 percent of Americans actually increased their retirement savings amid the pandemic.
It starts to add up when you consider that spending was way down and people were effectively locked up in their homes for months on end. Basic math and common sense tells us that when expenses are down, savings are up — providing of course that you have a sensible approach to your finances.
The combination of government stimulus checks and the threat of the virus keeping people indoors and away from their expensive morning coffees and dinners out on the town, has been responsible for a large increase in the household saving rate and the cumulative impact has been worth about $1.3 trillion — a figure reported in November last year, and one which is expected to rise.
So, with savings on the rise, why not consider adding an emergency savings account to your retirement plans? Emergency savings vehicles added on to retirement programs can be a potentially valuable tool to help Americans weather financial storms. Think about it. If emergency savings were available, one would prioritize using it over dipping into retirement savings, and thus, such savings would protect against retirement withdrawals.
And a little extra savings is also useful when circling back to those debts we mentioned earlier. Here are are some debts to think about before embarking on the journey of retirement.
A home can certainly be considered an investment, but focusing on reducing the debt attached is definitely worthwhile too. One way to shave down your mortgage is to apply extra money toward the principal. Housing debt is a major component of debt for families with a head age 55 or older.
A recent talking point since President Biden took office is the elimination of student debt.
The President’s proposal to forgive $10,000 of federal student debt as COVID relief could erase loan balances for 15 million borrowers and reduce balances for millions more, according to federal data. Broad student loan forgiveness could affect 45.3 million borrowers with federal student loan debt who owe a total of $1.54 trillion to the government.
Even if the proposal doesn’t end up going through, if you’ve taken on the responsibility of paying for your child’s education, start repaying loans as soon as they come due, make more than the minimum payment, and as soon as your child gets a job after graduation, have them contribute a certain amount each month to paying down the debt.
If you have $10,000 on a credit card with 12 percent interest, for example, it’s going to take more than nine years to pay it off if you're only making $150 payments, and you'd pay over $6,500 in interest.
Eliminating debt is one of the wisest things you can do for your own retirement.
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