There are several facets to retirement planning, ranging from investments and savings, arranging medical and long-term care, determining whether to relocate and seeking out activities to occupy time. However, one of the most important aspects of planning for a sound retirement is eliminating debt before leaving the workforce.
Credit card debt, medical bills, auto loans and other balances can be crippling to working Americans, and carrying these costs into retirement can make it more difficult for retirees to stretch out their budgets for the duration of their golden years. Working Americans bring in regular income that allows them to chip away at their balances. Retirees, however, may be living on fixed income, such as savings, retirement accounts and pensions. While Social Security and investment dividends can provide some financial assistance, it may not be sufficient to eliminate heavy debt. For this reason, adults who plan on retiring in a few short years should implement a plan to eliminate debt before they stop working.
The first thing adults should do to adequately plan and cover all their bases is speak with a professional. Credit counselors, retirement advisors and other professionals can analyze an adult’s income, financial obligations and debt to help them devise a plan for eliminating their balances. In addition, adults should not just focus on curbing one type of debt, such as credit cards, but other high balances that may weigh them down. This includes home equity lines, auto loans, medical bills, credit cards and retail store cards.
One of the most common ways adults begin chipping away at their debt is by establishing a strict budget. Budgeting also allows individuals to develop an effective repayment plan, but also helps them get accustomed to disciplining their spending and living on a fixed amount. Becoming comfortable with living on a budget prior to entering retirement can make it less of a shock for individuals when they do eventually leave the workforce.
In addition, downsizing early on can also free up more income to devote to debt payments. Housing costs constitute one of the largest expenses individuals take on, so pre-retirees should determine if they plan on moving to a more affordable location or paying off their mortgage before retiring. Cutting back on other expenses and downsizing to a more affordable vehicle can also make a significant difference in an adult’s income and help them simplify their finances.