I recently read an outstanding blog post on how to get "retirement ready". You can read the article here.
It basically gives retirement strategies for late starters. According to this source half of Americans have nothing put away for retirement. The good news is there is some hope for most of these folks if they act now.
The author lists six ways to fine tune your retirement plan. Of course, he listed saving more and working longer, no surprise there! However, I was blown away by the fact that he listed "consumer debt reduction" as his first tip. The power of debt reduction or debt reorganization can help close the gap that exists between your retirement projected income and your real expenses.
When you start talking to folks about retirement planning they immediately feel threatened and uptight because they fear that you are going to suggest catching up on IRA contributions or some other tactic that involves moving money from your day to day life and into your future. However, debt reduction can have just as powerful an effect on your retirement plans as saving more and I will show you right now.
Let's assume that you are a blue collar worker who is in his 60's and you haven't saved enough to retire on your target date. Let's also assume that you are like most Americans and you carry $16,425.00 in credit card debt. That figure is from the Census Bureau and the Federal Reserve. While that number seems very daunting it does represent an opportunity to improve your retirement position.
If the interest rate is !8.9% and the minimum payment is 4% then the dollar amount on that minimum payment amounts to $657.00 a month and if you didn't add to that debt it would take 185 months (over 15 years) to pay it off.
Let's look at the best case scenario. You inherit some money or get a large bonus at work and you pay off that credit card balance. You don't acquire anymore debt. Your monthly budget just improved $657.00 a month or $7884.00 annually.
Let's frame this in a way that is much more powerful. If you invested $120,000 in a retirement fund that earned 3% interest you could draw $657.00 a month for the next 20 years! Paying off that credit card debt would be equivalent to saving $120,000.00 in a retirement plan. You could get yourself much more retirement ready by alleviating this crippling debt. Which seems more attainable, saving $120000 or paying off $16,425 in debt?
But let's be realistic because you probably aren't going to get a bonus or inherit the $16,000.00. But let's do something a little different. Let's refinance that $16,425.00 credit card debt through someone like Discover or Lightstream or any number of lenders who are clamoring for this debt consolidation business. You find a 6.99% interest for your $16,425.00 for 60 months and the payments are $325.00 a month.
You just improved your cash flow by $332.00 a month which is just under $4000.00 a year. You also have reduced your payoff time from 15 years to 5 years and then you will be enjoying the full benefit of $657.00 a month for as long as you remain debt free and you definitely need to be thinking debt free as you enter retirement.
Debt reduction is a powerful tool in your arsenal of retirement strategies!
It basically gives retirement strategies for late starters. According to this source half of Americans have nothing put away for retirement. The good news is there is some hope for most of these folks if they act now.
The author lists six ways to fine tune your retirement plan. Of course, he listed saving more and working longer, no surprise there! However, I was blown away by the fact that he listed "consumer debt reduction" as his first tip. The power of debt reduction or debt reorganization can help close the gap that exists between your retirement projected income and your real expenses.
When you start talking to folks about retirement planning they immediately feel threatened and uptight because they fear that you are going to suggest catching up on IRA contributions or some other tactic that involves moving money from your day to day life and into your future. However, debt reduction can have just as powerful an effect on your retirement plans as saving more and I will show you right now.
Let's assume that you are a blue collar worker who is in his 60's and you haven't saved enough to retire on your target date. Let's also assume that you are like most Americans and you carry $16,425.00 in credit card debt. That figure is from the Census Bureau and the Federal Reserve. While that number seems very daunting it does represent an opportunity to improve your retirement position.
If the interest rate is !8.9% and the minimum payment is 4% then the dollar amount on that minimum payment amounts to $657.00 a month and if you didn't add to that debt it would take 185 months (over 15 years) to pay it off.
Let's look at the best case scenario. You inherit some money or get a large bonus at work and you pay off that credit card balance. You don't acquire anymore debt. Your monthly budget just improved $657.00 a month or $7884.00 annually.
Let's frame this in a way that is much more powerful. If you invested $120,000 in a retirement fund that earned 3% interest you could draw $657.00 a month for the next 20 years! Paying off that credit card debt would be equivalent to saving $120,000.00 in a retirement plan. You could get yourself much more retirement ready by alleviating this crippling debt. Which seems more attainable, saving $120000 or paying off $16,425 in debt?
But let's be realistic because you probably aren't going to get a bonus or inherit the $16,000.00. But let's do something a little different. Let's refinance that $16,425.00 credit card debt through someone like Discover or Lightstream or any number of lenders who are clamoring for this debt consolidation business. You find a 6.99% interest for your $16,425.00 for 60 months and the payments are $325.00 a month.
You just improved your cash flow by $332.00 a month which is just under $4000.00 a year. You also have reduced your payoff time from 15 years to 5 years and then you will be enjoying the full benefit of $657.00 a month for as long as you remain debt free and you definitely need to be thinking debt free as you enter retirement.
Debt reduction is a powerful tool in your arsenal of retirement strategies!
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