The Omaha-based brokerage firm TD Ameritrade conducted a poll called ‘Boomers and Retirement’ recently. The poll results indicated that an average baby boomer born between the years 1946 and 1964 is half-million short on retirement savings. The ultimate effect of this would be that they will be forced to continue earning even beyond their retirement age.
The lifestyle and meager increase in income often result in insufficient savings for this section of population and adding to the woes, are the extra burden of various debts they shoulder to continue the lifestyle even after retirement. It is quite obvious to become nervous when you face such a situation and even your financial planner will be worried and may not be able to offer much help.
Debt is never a reason to smile for any generation of the population except for the lenders. It results in dwindling of your savings and resources and helps only in increasing your tension. You may be earning well in your good age, but having a debt will take away a hefty sum out of it when you repay them, most probably the time will run into years. So this diverts your money from savings to debt repayment to a third person with no good improvement in the lifestyle.
Living without taking any kind of debt is not very practical. So, always plan to repay your debts as much as possible before you near your retirement. This article lists five types of such loans which should not be carried post your retirement.
1. Credit cards
Credit cards may be an easy finance option, like a debit card in the primary thoughts of many. The reality is different, it is also a kind of loan and it makes you pay interest on the amount you take as credit. If you plan to carry your credit even after retirement, it is not an intelligent idea. For, they not only extract much higher rates of interests compared to other loans, they also charge high penalty rates on late payments, even a day costs you dear in most cases.
If you schedule your credit card repayments on date every month and do not create any compound interest, it is not a big obstacle to relaxing in your retirement. Act wisely to finish off any credit card debt before you retire.
2. Car loans
Purchasing a brand new car in the initial years of your job by taking a vehicle loan is a common practice and is not likely to cause you any large damage. Yes, you have to pay the interest and vehicles depreciate in value. That doesn’t matter since you are using the vehicle, you are earning well and most importantly, you are young. This is not the same when you are near your retirement age. Thinking of buying a new car by taking a loan should be your last thought here. You can go ahead with the purchase, but only with your own money.
When you retire, choose to own such depreciating assets without creating any kind of debt on you. Try to completely repay and close your existing car loans as soon as possible to cut short the interest you will be paying and to plan your savings instead. You can do this by paying extra EMIs whenever you can afford and to create your own fund to buy a new car in future without a loan, or even use this for any other emergencies at Debts that ruin your retirement.
3. Student loans
A student loan can also be called as an educational loan, which is taken during a course expected to fetch you a job eventually. So availing a student loan is not a bad idea. However paying off a student loan even when are long past your studying age and retirement is in view, is definitely a mistake. Student loans may get initial excuses until you get a stable income and post that, efforts should be made to close it soon, irrespective of your monthly repay amount. Or else you will end up paying more interest than the principal in the tenure almost equal to a mortgage loan. Moreover, there is no point in letting your resources get diverted to interests on your education fee at an age when you should focus on your family and retirement savings.
4. Personal, payday and car-title loans
These types of loans come with high rates of interest, though easy to obtain. So it is safe to pay them off as you will get a tendency to avail them continuously and it will be difficult to put a halt to the process once you get adjusted to it. They may cause you to repay heavily even when your income hardly shows any increment. Carrying them into your retirement period is highly risky, for then, you may find it almost impossible to completely pay them off and huge debt will ruin your retirement plans.
5. Mortgage debt
Home is not only a place to live, but a prized possession and every person’s dream. Not everyone is able to own a house with their own money. For many, this can be an American dream. By owning a house, you are becoming more secure with a big asset, which at any point of time will only increase in value and be resourceful to you later. Planning to own a house by taking a mortgage or home loan is not harmful, for housing loans give you income tax savings and are also appreciating in value. Living in your own house may also relieve you from the expense of paying house rents.
Although you have many positives out of mortgage loan, it is still not advisable to get tensed about paying mortgage loans when you are well into your old age. Such loans come with a very long tenure. We may opt for long tenures for smaller EMIs, but will end up repaying an amount twice or thrice the principal. So here also, plan for early repayment before the completion of the tenure and before you retire. This is because any kind of debt which decreases your retirement income will not do any good for you at the end of the day, even if it is your house.
Your big asset will become one truly only when you own its possession completely, without owing anything to anyone for your home.
Getting to the point
Debt payments will only diminish your financial resources even when you earn and also, divert the prize of your hard work to a third party. Living debt-free should be the central aim for your retired life instead of harming your body and mind and eventually your life with debt repaying burdens. Save while you earn and keep the savings for a safe retirement. Truly retire, and the money will always find a reason to get spend.