The two pillars of a worry-free retirement
- Lifestyle– Maintain Your Same Standard Of Living
- Liquidity– Build Sufficient Funds For Emergencies And Opportunities
Worry-free retirement planning involves the disciplined accumulation of a planned amount of money by a specific target date. This accumulated amounth of money must be sufficient to provide the best standard of living and comfortable life after retirement.
Key takeaways:
- Studies have shown that the #1 thing that makes retirees enjoy a worry-free retirement – is having no debt.
- Take steps to pay off your debt, including your mortgage, downsize if you need to, and create multiple sources of income in your 50’s.
- We show you the best resources available to reduce debt.
3 Reasons not to have debt in retirement
1. Increased savings
- More of your money goes into savings and there is less likelihood of running out of money in retirement.
2. Less stress
- In tough times, it’s easy to forgo vacations, eat out, etc. If you have large monthly expenses that must be paid, the stress levels can be very high.
3. More fun
- You’ll have more money to travel, eat out, or take up a new hobby without having to worry about debt.
Top 4 ways to reduce debt before retirement
1. Psychologically decide that this is something you must do.
- The hardest step to reducing debt is to make a conscious decision to work towards reducing it. There are many examples of people becoming debt-free in a matter of 1-5 years. Talk to your spouse and make sure you are both on the same page – as sacrifices will need to be made.
- The interesting thing is the experience taught a lot to the people that were successful – and it changed their perspective on money and investing going forward.
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2. Create a budget
- Creating a budget is another key step. Most people avoid thinking about where their money goes every month – as it stresses them out and they don’t want to deal with it.
- Be brave, be conscious and track every expense. A lot of bank statements can group costs by entertainment, rent, car payments, etc.
- Leverage budgeting apps like Pocketsmith https://www.pocketsmith.com/why/ that can help investigate where your money is going and where you need to make changes. The basic version is free to use.
3. Start with high-interest credit cards
- Credit Cards usually charge the highest level of interest (compared to mortgages and cars). So, pay this off first.
- Pay more than the minimum balance.
- Move to a card that offers a 0% balance transfer.
- Stop spending with credit cards until the balance is under control.
- Change your spending habits – try using just cash for a while.
4. Try to have cars and your home paid off as soon as possible.
- Buy, not lease a reliable car. In a few years, it will be paid off. Cars can last 20+ years if taken care of – and there will be no monthly payment to worry about.
- Switch to a 15-year mortgage so that a higher amount goes towards the principal. If all goes well, there will be a few years of mortgage payments after you retire to be completely mortgage-free.
- Downsizing is also an option if you have built a lot of equity. It’s cheaper to maintain a smaller home. Also makes it easier to lock up your home and travel.
5. Financial assistance programs
- Programs such as AARP’s Daily Money Management (DMM) or NCOA’s EconomicCheckUp provide options for retirees where financial assistance is available.
- Although they are similar to financial advisors, what’s beneficial here is that they will help with paying bills, negotiating with creditors, help you with avoiding scams, and provide support for general financial management activities.
- Financial assistance is available but you will have to qualify to be eligible for these benefits.
Summary
- Start thinking about becoming debt-free as soon as possible so you can live a stress-free retirement.
- There are many resources and tools to help you become debt-free as outlined above.
- The key first step is to take action by paying off your highest expense items like your credit cards, cars, and then the house.
Other Considerations to Increase Monthly Income
- In addition to reducing debt, generate high monthly income on your savings.
- The best investment type for high retirement monthly income are covered call ETFs that provide high monthly income, low risk, and downside protection.
- Covered calls were once extremely complex, but with new instruments on the market, it is as easy as buying a stock.