How Debt Now Can Affect Your Senior Years

ElitePersonalFinance
Last Update: February 11, 2021 Debt

All of us have a little bit of a tendency to put things off until tomorrow or 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 greatly impact 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 they either accumulated over the years or may have done so recently prevents 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 will be debt-free by that time. If this is 5 years in the future and you will finance a new car now, make sure the payments will be made within the next five years.

Understand The Limitations that Your Debt is Going to Put on Your Retirement

Even if you have done all of the calculations and know that you will 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 will not be able to enjoy the finer things in life. You may have thought about traveling 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 Buy You Peace of Mind

There is a certain amount of stress that sets in as we age, wondering if our health will 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

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 debt areas, now is the time you really want to analyze this and make 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. Often, 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 their industry, and they wanted to further their careers. 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 student loan debt is that they are in a greater position to default on their loans. They don’t have enough money to cover the payments. The result is collectors constantly harassing them. Unfortunately, student debts cannot be discharged in 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 most 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 have long term consequences even if it 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 is the only income that 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 the enjoyment of retirement will create a much more solid future.

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