Most people live under the impression that retirement means it has to be debt free. You should’ve paid off all that you owe on your home, your credit cards should have zero balance on them and you should at best have to deal with a car payment – the ideal scenario looks somewhat like this.
Now you might actually be wondering on reading this whether it’s your situation in reality or some make believe utopia. Well, you must have definitely thought of retirement without debt in the equation, but you must’ve also realized that in the present scenario that line of thinking practically does not exist.
The real story behind debt free retirement
It’s quite obvious that any and everyone would like to become debt free and then retire. However, fact remains that the scenario is actually far different from that line of thinking. If you’re to consider the statistics released by the Employee Benefit Research Institute (EBRI), then the average household debt for about the age of 55 and above stands at 75,082 dollars approximately.
This has been constantly on the rise, for even a few years ago this debt figure stood at 73,727 dollars. Moreover, studies reveal that the total debt payments have increased to almost 11.4 percent from the figure of 10.8 percent a few years back. Now, it’s obviously an unsettling trend especially if you’re to combine it with the fact that housing constitutes a major component of debt for those with age 55 and older.
Another study that was conducted by the business group Strategic Business Insights reveals that almost 39 percent of the households that are headed by those who’re between 60 to 64 year old have had primary mortgages. This has increased by almost 22 percent since 1994. In fact, all debts for this age group have risen including the percentage of second mortgages. There was a dramatic increase in debt for second mortgages as well, since here it had gone up to 20 percent recently whereas this figure was at 12 percent even 8 years ago. Worst of all is the revelation that comes from the National Foundation for Credit Counseling. It reports that almost about a third of the clients who file for bankruptcy are at least 50 and above and this is definitely not a happy state of affairs.
The mode of action towards a debt free retirement
Check out the following steps which would help you retire debt free in spite of the discouraging scenario that’s prevalent all around.
Don’t wait, simply downsize:
It’s definitely not a wise idea to wait any further with retirement drawing near. Start downsizing as soon as possible. Move in to a smaller place before you run out of options altogether.
Time your mortgage payment right:
You know exactly when you’re going to retire, so it’s extremely important for you to time your mortgage payments just right and that too before you retire. You can use an amortization calculator and make sure that you retain the flexibility of not making extra payments.
Reduce retirement contributions temporarily:
This is one thing that you can do, but you’ve got to be extremely cautious in the process. It should be a temporary measure so that you can get rid of your debt before you retire.
Look for a second job:
Believe it or not, but with retirement drawing near and you wanting to retire debt free, nothing could help more than a second job. This would give you extra income which can be used for paying off debt.
Work for a few years more:
This is something that you must be willing to do if you see that your financial crunch absolutely demands it. The idea is to retire only when your debt is paid off. Moreover, when you’re working longer, then it goes without saying that you’d be able to save more for post retirement life.
It’s a fact that today’s economy is rather uncertain and reducing your debt is one of the ways by which you can get some semblance of control over your finances which might otherwise be running haywire. Debt free retirement isn’t impossible provided you’d truly like to achieve so.
Samon Bagons is a financial writer who has profound knowledge on the contemporary financial world. He loves to contribute his articles to various financial communities, websites and blogs so that people who are going through distress, can read and help themselves get out of the debt mess.