Three Steps on How to Help Save for a Debt-Free Retirement
Are you worried about getting a handle on debt as you near retirement? In addition to adding to your cost of living, excess debt during your working years can keep you from setting aside enough retirement funds to nurture your nest egg. Here's some ideas to consider on how to tame debt before it gets the best of you.
Step One: Live within your means
Used responsibly, debt can let you enjoy a better lifestyle and provide for your family. But when your monthly loan payments start to consume funds that you should be directing towards retirement, you are likely living beyond your means.
Take a close look at how you choose to use debt. Consider options that let you pay cash or borrow less (like buying an older car, for example), then the money you would have put toward loan payments can be contributed into a retirement account.
If these approaches aren't enough, consider increasing your income by taking on extra work or seeking a higher paying job. These aren't necessarily enjoyable options, but they can help you avoid debt that will threaten to derail your retirement.
Step Two: Manage the debt you have
Most of us have a number of loans of various sizes and rates of interest — up to 30 percent for some credit card debt. The good news is that you may be able to reduce your monthly payments using a few simple strategies:
Shop for loans. Don't assume the car dealer (or appliance store) is offering the best rate. You may do better by comparing loans from several sources. Having a loan preapproved may even allow you to negotiate a lower price on a big-ticket item like a car.
Consolidate your loans. Keep an eye on interest rates. If they fall, you may be able to combine several loans into a single, larger loan with a lower interest rate.
Pay off loans early. If your savings account is paying 0.5 percent interest and your credit card is charging 14 percent, it may make sense to consider using savings, if you can, to pay off the credit card.
Step Three: Use savvy savings strategies
Successful savers know that one of the best ways to grow your retirement savings is to make a plan for regular contributions to a savings and retirement accounts. Here are some ways to consider making savings work for you today and tomorrow:
- Use different accounts for short-term and long-term goals and pay into these accounts using direct deposit from your paycheck if possible.
- Sign up for automatic contributions into your employer's retirement plan. Then contribute the maximum needed to receive the full employer match.
- Set up a Roth IRA, a retirement account that can provide you with tax-free income when you retire.
- Review your retirement savings rate at age 50. The IRS allows "catch-up" contributions to IRAs and other retirement plans to allow you to save (and deduct) more.
By following these three strategies, you'll soon find that there's almost no sacrifice needed to make your near-term goals and long-range dreams come true. But if you do ever start to feel that you're depriving yourself of something you want to buy, take a few minutes and browse your savings and retirement accounts to see just how quickly they've grown.
Take the next step...
Consider increasing your contributions toward retirement! Login to the retirement account at The Principal Retirement Service Center® to increase your contributions to the retirement plan.
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
