All of us have a little bit of a tendency to put things off till tomorrow, or to adopt the attitude “tomorrow is another day”. When it comes to personal finances applying this way of thinking can be a big and costly mistake.
The tomorrow that we all need to consider is the tomorrows for our senior years and being financially prepared for them. What is done through the early and mid-years can have a major impact on how golden the senior years really become.
Your current debt can affect your date of retirement:
There are many individuals that have reached the age of retirement, yet it isn’t an option. The debt load that they either accumulated over the years, or may have done so just recently is preventing this. As the retirement years are on the horizon this is when many seniors start to take a look at the here and now and what their financial situation is . Knowing that there will no longer be an employment income to depend on can be frightening. The individual who is near retirement may be managing fine financially as long as they are working. The debt that is present is the culprit here.
The solution is to cap increasing your debt according to the remainder of your working years. If you know you can take retirement from your company at the age of 65, and then make sure you are going to be debt free by that time. So if this is 5 years in the future and you are going to finance a new car now, then make sure the payments will be done within the next five years.
Understand the limitations that your debt is going to put on your retirement years:
Even if you have done all of the calculations and you know that you are going to be able to handle your current debt ratio once you enter your retirement years, consider what you may end up missing. While you may be able to pay your debts and maintain your present standard of living, you are not going to be able to enjoy the finer things in life. You may have thought about travelling once you retired, but the extra funds to do this will not be there. Yet, if you didn’t have your current debt load this is money that could go towards some wonderful trips.
Clearing your debt buys you peace of mind:
There is a certain amount of stress that sets in as we age wondering if our health is going to hold up so we can continue working. The same will apply when you head into retirement with a debt load. You may be concerned that your spouse will be left with a debt burden if something should happen to you.
Which debts are going to have the greatest impact on your senior years?
It isn’t just a matter of being in debt that is the issue; it is the kind of debt that you are faced with. Some debt is easier to pay out than others. If you have several different areas of debt, now is the time you really want to analyze this and do some projections.
One type of debt that can linger on for years is student debt. It is hard to believe that many seniors are still struggling to pay off their student loans. Many times this is because they decided to return to school later in life and as a result relied on student loans to do this. Some individuals were required to further their education because of the industry they were in, and they wanted to further their career. A smaller number of seniors who still owe money for student debt are those that borrowed money for their children’s education.
The problem that arises for seniors who are still beholding to student loan debt is they are in a greater position for defaulting on their loans. They just don’t have enough money to cover the payments. The end result is collectors constantly harassing them. Unfortunately student debts cannot be discharged in a bankruptcy. Some seniors could end up having part of their social security garnished.
Another big factor that affects many seniors is their credit card debt. This is a debt that many have carried with them for many years, with the majority of payments going towards the high interest rates that many of these cards carry.
Financial decisions made now that impact the future:
It isn’t just a matter of clearing out the debt so one can live out their senior years with no debt hanging over them. Accumulating debt in the younger years can still has long term consequences even if the debt is controlled and paid out before retirement.
All the money that goes into paying the debt down means a lot less money is being saved for retirement. Individuals are not putting enough if any, into their savings or their retirement plans. Then once the retirement years arrive even though they may be debt free, their income is not as adequate as it was thought to be. The cost of living rises over the years. Social security being the only income makes it very tight financially even for the frugal person.
The important factor to keep in mind is to start thinking and planning for the senior years while at a young age. The more years dedicated to planning for that time of life, the more solid financially it should be. There is always the risk of unforeseen expenses at that time just as there is now. A good example is medical expenses. Financially planning for the unexpected and for the enjoyment of retirement will create a much more solid future.