When I ask people who are considering retirement what their main concerns about retirement are, their number one answer is not having enough money in the bank for their retirement plans and health care needs. However, after a little discussion the real problem is how much money they are going to need to deal with the amount of debt they still will have when they retire.
Retirement savings is a big part of retirement planning, but so should be dealing with the financial obligations like the mortgage, credit card payments, car and personal loans you still are committed to after you retire.
My observation is that most people have created this debt without considering the long-term impact on their financial future or retirement.
As you think about retirement, you might want to consider some of these suggestions, regardless of how long you have to go to reach retirement.
? Stop creating new debt. My dad once told me, "you can't borrow yourself rich." Good point. You cannot get out of debt if you keep taking on more obligations that keep putting a drain on your cash flow.
? Save first. This is one place the government has got it right. They take their money out first; that way they know they will get it. Likewise, we have to put some savings away first. You have to change your mind-set from "saving what is left" to "saving first." If you plan on saving what's left, there will never be anything left to save. Take advantage of the 401(k) plan if it is offered, but plan on saving on your own as well. Have 3 to 5 percent automatically put into a savings account just for retirement.
? Scale down your budget. Don't eliminate anything from your budget. Cut back a little bit on everything, from food to clothing, from eating out to recreation.
? Plan for the expected and the unexpected. Planning for expected bills should be fairly easy, like rent, mortgage payments and utility bills. Likewise we need to plan for those bills we see less often but on a regular basis, like insurances, oil changes, house maintenance, vacations, taxes, etc. The unexpected ones we often go into debt to deal with, like replacing or repairing a furnace or hot water heater, a medical bill, or major car repair. To deal with the unexpected expenses we need to exercise a little discipline and set up a separate emergency savings account to deal with them.
? Attack the debt. If you could pay an extra $100 a month on the credit card or the mortgage now, you would need less in retirement to pay those obligations. If you didn't have a mortgage payment, think how much less you would need every month.
Learning how to save and a good logical plan to pay off or reducing your debt can greatly improve your chances of having enough money in retirement.