Retirement should be a time to relax and enjoy life, not worry about bills.
Unfortunately, many Americans do not have this luxury and end up spending their retirement struggling with debt.
According to research from the Employee Benefit Research Institute, Americans aged 55 and older are using more than 10 percent of their total income to pay off debts. With this money devoted to debt payments, there is not much left for having fun.
Fortunately, there are a few strategies you can use to avoid these issues and live debt-free in retirement.
1. Aim to have your house paid off before retiring
The biggest debt most people have is their home loan. If you enter retirement with a balance still remaining on your mortgage, a large part of your monthly budget is going to have to go toward paying off this large debt.
However, if you own your home, your income will go a lot further.
A good strategy is to set up your mortgage so it will be paid off before you retire. Check your payment schedule and see when the bank says you will be debt-free.
If the loan will continue after you plan to retire, you may want to refinance to a shorter loan that will end earlier. You will have to make larger payments now, but this will help to ensure you are debt-free during retirement.
2. Delay retirement for a few years
Many workers are in a rush to retire as soon as possible. While it is understandable to feel this way, there are many financial benefits to delaying retirement by a few years.
First, this will give you a few more years of income. You can use this money to pay off your remaining debts and save up more for the future.
Also, the longer you can wait to start taking Social Security payments, the larger your monthly payments will eventually be. When you have more money coming in each month from the government, it is easier to avoid getting in debt.
Finally, you only have a certain amount of money in savings. If you start spending this money too early, there is a great chance you will run out and will have to rely on debt to make ends meet.
“People are living longer, which makes
retirement a tough financial challenge.”
3. Plan your weekly budget as soon as possible
When you retire, your budget becomes very important, more important than when you were working. Since you will be living on a fixed income, you need to make sure you know where every dollar is going.
The issue is many retirees are so excited to start having fun that they spend too much and get into debt problems. You need to set a monthly spending budget based on your savings and other income right from the beginning of your retirement.
Make sure to stick to this plan and do not cheat to avoid debt.
4. Consider a part-time job
Living on a fixed amount of savings in retirement can be difficult. Another way to avoid falling into debt is to get a part-time job.
You will be working much less than you were at your main job, so you will have plenty of time to enjoy yourself. At the same time, you will have a paycheck coming in each week, which makes it easier to avoid debt.
A part-time job can be a way to ease into retirement instead of diving in headfirst.
People are living longer than ever, which makes retirement a tough financial challenge. By using these strategies to avoid debt, you will put yourself in a better position when you retire.
Photo source: awadvisors.com.