Financial Retirement Planning


Should I Carry some Debt into Retirement?

February 21st, 2018 ernie Posted in Debt Reduction No Comments »

problem for new retireesThe quick answer to the question, should I carry some debt into retirement is no, if you can avoid it. Obviously who would want to knowingly carry debt into retirement, however there are lots of people that are retired and are carrying some debt. Whether it is credit card debt or a line of credit, it is another monthly payment that must be made and depending on the interest rate it can also be very expensive. Credit cards carry interest rates of 21% or more on any unpaid balances. Even unsecured lines of credit can be expensive. They typically are higher amounts and the interest rates are higher as well for anything that is un-secured.

Why You Might Answer Yes to the Question, Should I carry some Debt into Retirement

Sometimes life just gets in the way. The best laid plans are foiled by early retirement. People get laid off from their jobs, are forced to retire early because of health or down sizing. If you find yourself in this situation and you still carry a mortgage, chances are you will carry it into retirement as well.

Many people decide to go on trips when they retire. Some will spend money on the house to freshen it up. There are many ways to spend money and if we are not careful it means we carry it into retirement as debt.

Debt in retirement does not always have to be a bad thing. Obviously we would prefer not to have any debt. Manageable debt that is declining over time through monthly payments is okay. Debt that is used for investments is obviously higher risk, but it can have tremendous payback.

For most people if you have debt, try to repay it as quickly as possible, paying down the highest interest rate debt first. Renegotiate your debt to arrange for lower interest rates and less fees. Avoid missing payments and if you must downsize your home and expenses to focus on reducing your debt as quickly as possible. Avoid spending money that you do not have and prepare for the day when an emergency will eat up a lot of your savings.

For more about debt reduction in retirement, click here.

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Prioritizing Debt Reduction or Adding to My Saving for Retirement

November 7th, 2017 ernie Posted in Debt Reduction No Comments »

prioritizing debt reduction or adding to my saving for retirementMany people want to know if it is better prioritizing debt reduction or adding to my saving for retirement? They also should add to this question of whether they have emergency savings available to deal with big financial surprises. As with most questions of this type there are several different answers depending on the situation that each consumer finds themselves in. Factors such as loan interest rates, existence of emergency savings, whether you own or rent, how long it will be before you retire and how much you have saved for retirement. We will look at each of these issues. Bottom line is that each consumer must make their own decision based on their personal situation.

Prioritizing Debt Reduction or Adding to My Saving for Retirement

A little more detail about each of these major areas.

  • Debt Interest Rates
  • Emergency savings
  • Years to retire
  • Retirement savings

Debt Interest Rates – Basically if you have a thousand dollars and you can  earn 5% income by investing the money compared to your loan at 3%, then you probably should save the thousand and invest it. If the 5% income will be taxed, then it might be equivalent since taxes will take some of your income. For loans and debts carrying interest rates higher than 6% e.g. credit cards at 21%, pay off the credit cards first.

Emergency savings – Everyone always needs to have money set aside for emergencies. Whether it is major repairs to your home, your car or a health issue, make sure you have 6 months of savings set aside to deal with emergencies. It could take 6 months to find another job if you lost yours.

Years to retire – If you are planning to retire shortly, pay off all of your debt as quickly as possible so that you are debt free when you retire. You may work longer, however saving will be much more efficient when there is no debt.

Retirement savings – Saving for retirement is incredibly important. So is paying off debt. Finding the right balance depends on how close you are to retirement, how much debt you have, the interest you are paying on this debt and what you can earn in your retirement savings plan.

Generally experts advise paying off debt as quickly as possible since in most cases the interest rate is higher than any investment income you can earn after taxes are paid.

Comments are welcome. For more information on this subject, click here.

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Rent or Buy in Retirement 

March 7th, 2016 ernie Posted in Debt Reduction No Comments »

Rent or Buy in Retirement This is the big question for many people who are contemplating retirement and also thinking of downsizing. Should they Rent or Buy in Retirement? Should they sell their current home and purchase another smaller home that has a lower cost profile or should they invest their equity from the sale of their home and rent a place? This is a tough decision for many people on an emotional level as well as on a financial level. We will discuss some of the issues that consumers should consider when making a decision like this.

Rent or Buy in Retirement

Advantages

  • Mortgage interest write off
  • Property tax write off
  • Asset appreciation
  • Freedom to make changes as desired
  • Renting can mean a short term commitment to test a location
  • Renting might be cheaper – run the numbers
  • Moving into a brand new apartment with new amenities

Disadvantages

  • Repairs and maintenance of a home
  • Gaining access to equity can be difficult or slow
  • Selling a home can take a long time
  • Coming up with a down payment to buy a home
  • paying the mortgage each month
  • Landlord can change his mind and force you out
  • Apartment is unlikely to be upgraded over time
  • Leaving the family home can be difficult

Each person needs to evaluate each of these issues carefully and then makes the best decision for their personal situation. They also need to run the numbers for both scenarios to assess which one meets their financial needs. Build in inflation for things like rent increases, utilities etc to ensure that you do not get a big surprise.

 

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High Housing Cost Makes it Difficult to Retire

February 14th, 2015 ernie Posted in Debt Reduction No Comments »

High Housing Cost Makes it Difficult to RetireYour home is paid off and yet you are wondering if the high housing cost makes it difficult to retire. When you retire some costs will decrease such as work related costs, however there is a good chance that other leisure related costs will go up since you have more time on your hands. Then of course there are the taxes, utilities and general upkeep on your home that will increase by some amount every year. Depending on your pension and  other income, your expenses could increase faster than your income. For many people this represents a significant problem and may push them out of their homes! In this situation, high housing cost makes it difficult to retire.

High Housing Cost Makes it Difficult to Retire

There are several options however it is important to analyze your costs, how much they will increase year over year as well as your income. Once you have these numbers you can decide on the appropriate alternative to select.

  • You plan to retire and stay in your home
  • Should you down size
  • Sell and Rent

Each of these scenarios should be assessed after assessing the following:

Regular operating costs for things like utilities, heat, electricity and other regular monthly and annual fees that are part of maintaining a home. Some may have HOA fees, while others will hire lawn maintenance. All of these regular fees should be included.

Maintenance costs whether you like it or not occur every year. Small things such as leaking faucet repairs, window repairs, maintenance of lawn mowers etc. While they should not be large amounts they never the less add up over the year.

Housing repairs such as roof replacement, driveway repairs, major appliance repairs or replacement including furnace and air conditioning.  These are big ticket items and need to be budgeted for if you plan to stay in your home. Even if you move, these also could be issues that you need to deal with if you purchase a home that is not brand new.

If you do decide to move, take into account everything associated with the move which could include real estate fees, legal fees, bank fees, land transfer taxes, moving costs, decoration costs, updates and repairs to the home you move to. Even if you move to a brand new home there will be landscaping for example, window coverings, and decoration costs.  Discuss all of these items with your  spouse to make sure that you are agreed on what needs to be completed associated with moving.

Confirm your cash flow in retirement based on the analysis you complete for the above scenarios that reflect your personal situation and then make up your mind regarding which one makes the most sense for your situation.

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Carrying a Mortgage into Retirement

December 7th, 2014 ernie Posted in Debt Reduction No Comments »

Carrying a Mortgage into RetirementThirty percent of Americans 65 years and older are carrying a mortgage into retirement and trying to figure out how to handle the payments. No one really wants to carry a mortgage into retirement, however in many cases it can just not be avoided. There may be health issues that take a lot of money, there might have been a divorce or separation, there may be children’s education to pay for or maybe you just spent too much and did not plan properly.

In many cases, consumers have been laid off from a well paying job and find themselves unable to find another job, effectively putting them into retirement. Whatever the reason, carrying a mortgage into retirement can be difficult for some and at the very least it will limit the things you plan to do during your retirement.

Cash flow is all important in retirement. The bottom line is that there is only so much money coming in each month, your expenses will eat into that income. Your mortgage that you carry into retirement will eat into this cash flow along with your expenses for living, visiting the grand kids etc. If you are young enough to plan in advance, make every effort to repay your mortgage in full prior to retirement.

You will have all of the cash you need to live your life. Many people will use a line of credit to help them deal with situations where they do not have the cash to handle various situations. While these are excellent tools, there is the danger of using them and then finding that you cannot pay them off quickly since the cash is just not there.

Carrying a mortgage into retirement

Folks in this situation have  much less flexibility in spending due to the cash flow impact. That $400 or $800, whatever the mortgage payment is, is money that you don’t have to enjoy in your retirement.

Other pressures such as putting students through university, unemployment, retiring early, health expenses etc. can affect your ability to repay the mortgage. Even if you have a line of credit against your home which you consider a loan, make sure that it is fully paid before you retire. We see lots of people spending a lot of money in the years before they retire to upgrade the house, buy a car, major repairs to their home etc. If you have the cash to pay these major expenses great, if not make your cash last as long as possible to avoid serious cash flow issues.

Pay off high interest loans first, then focus on low interest mortgages. By taking this approach you can at least minimize the amount of interest you are paying each month.

For more life style topics, click here.

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Viable options to get out of student loan default and rejuvenate your credit rating

October 7th, 2013 ernie Posted in Debt Reduction No Comments »

student loanDid you recently find out that you’ve graduated college not only with a degree but with a huge burden of student loan debt? Student loan debt crisis is the next big crisis that is paralyzing the US economy and is crippling an entire generation. Studies reveal that there are increasingly large numbers of seniors who are still bearing their student loan payments that they’ve incurred when they were in college. With the rise in the cost of education, no student or parent is being able to bear the costs of college alone and are thereby taking resort to student loans and are then falling into the trap of student loan debt. Most students wonder about the options they might take resort to in order to get rid of student loan default.

Student Loans and Credit Ratings

When you’re more than 270 days back on your student loan payments, you will be considered in default and getting out of such a situation is what it takes to deal with student loans. Most of the repayment plans and postponement options require you not being in default or might demand you to make 3 reduced but timely payments in order to qualify for the alternative payment option. Apart from that as long as you’re in default, you won’t be eligible to get new grants or loans. Nevertheless, check out some ways of getting rid of defaulted student loans.

Approaches to Eliminate Student Debt

  • Cancel the entire student loan: You can get out of defaulted student loans if you can qualify for getting the loans cancelled or rather discharged. This is perhaps the best option for a cash-strapped borrower as you no longer remain obligated to make payments. However, as there are restrained options for cancelling student loans, this option might not be for all kinds of student loan debtors.
  • Get a direct debt consolidation loan: If you owe debt on federal student loans, you can take out a direct debt consolidation loan so that you’re able to combine your payments into a single monthly payment. The loan will carry drastically lower rates than what you were paying on the individual loans and hence you can also save a considerable amount of money. Once you get a direct debt consolidation loan, you can stick to making a single outgoing payment to the US Department of Education.
  • Get an alternative repayment plan: Yet another way to get rid of defaulted student loans is to set up an affordable repayment plan with the loan lender. Based on their personal financial circumstances, the borrowers have right to request such repayment plans. Loan rehabilitation is also a way of changing the lender of the loan. After you make certain number of payments, the guaranty agency or the US Department of Education will sell off your loan to a new lender and the new lender will put a standard 10 year repayment plan in place. This will ease off the pressure of monthly payments.

Therefore, when you’re spending sleepless nights worrying about effective debt management of your burgeoning student loan debt level, you may resort to any of the above mentioned options. Repaying debt or cancelling debt will help you boost your credit score.

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Do the IRA accounts have any effect on debt settlement?

September 24th, 2013 ernie Posted in Debt Reduction 1 Comment »

debt settlementAn IRA is considered to be one of the best options for you to save money for retirement. There are various benefits of saving money through IRA’s, and the main one is the tax benefit. However, the question is can the IRA account help you with managing debts? Does it in any way affect your debt settlement ability? In order to find out the answer to these queries, you will be required to know all of the details regarding the IRA accounts. You will also need to know your total debt situation, who you owe money to, how much you owe and how long it will take you to repay these debts.

IRA and debt settlement

There mainly are two types of IRA accounts and these are the simple IRA and the Roth IRA accounts. Both of these have some forms of tax advantages, but the benefits differ on the basis of account type. You are supposed to put money into your IRA account so that you can go on to lead a stress free retired life. However, can you use the money from the IRA accounts to manage your debts? First of all, if you aren’t aware of the complexities, the most obvious fact is reduction in the amount saved. When you will be withdrawing money from the IRA or the Roth IRA account, it is going to result in loss of the total amount saved. Another disadvantage is that if you withdraw money from the IRA accounts, you will have to pay tax on that.

Still, if you are too deep in debt, and all other sources have been exhausted, using money from IRA accounts can help you avoid bankruptcy. The IRA accounts can help in improving your credibility to settle the debts. The IRA accounts have the capacity to stay put with the different types of retirement investments carriers like that of bonds and stocks, the money market funds and so on. Therefore, reaping the benefits becomes easy with the IRA account.

Debt settlement is the process through which the outstanding debt amount gets settled. So, if you can settle the debts, it becomes easier to become debt free, as the amount gets lowered. Although, not all creditors agree to settle the debts, you still can get some to settle debts. If you have been missing payments for quite a long time, and if you can exhibit that you are in serious financial hardship, and that there’s no way the creditor can get more than what you are offering; they may agree. Managing payments on a small debt is easier than a large debt. Therefore, if you can go on to let the money grow from the beginning in the IRA account, you can use some of it to make the debt payments, even after settlement.

However, if your debt problems are minimum and if you think that there are still other options, it would be better to try out those, rather than withdrawing money from IRA accounts. This is mainly because, there are tax consequences of the withdrawal. So, weigh all of the options, and the pros and cons before opting to use the IRA account.

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How to Reduce Debt

October 7th, 2012 ernie Posted in Debt Reduction 3 Comments »

How to Reduce DebtWe recently read a survey which prompted the writing of this post. This web site is dedicated to helping readers manage their debt and to also manage their savings. Consumers need to get involved and take control over their debt and savings to ensure they have a satisfactory financial future. No one else will do it for you.

We hope you read this post and can make use of the information as well to take control of your financial future. Failure to act or failure to deal with your debts is only going to cost you more money in terms of interest at the very least and at it’s worst, could push you into bankruptcy!

How to Reduce Debt – Survey

The survey is summarized as follows:

A recent survey indicates that consumers are not taking advantage of available tools and strategies to reduce and pay down their debt.

The reasons given are interesting.

They include:

  • The overall amount of debt that they have
  • Interest rates they pay on their debts  – despite interest rates remaining at near historic low levels.
  • The number of different debts they have as a barrier to debt freedom.

These are all valid reasons for the respondents, however if allowed to continue will stop them from not only paying down their debt quickly, but also cost them much more money as a result of increased interest charges.  Not getting involved and taking charge will possibly hurt you over a life time financially.

What are the tools available to consumers?

These tools include:

  • Consolidation of their debts at a single low interest rate.
  • Making extra payments on their mortgage.
  • Compare mortgage products from more than one lender the last time their mortgage came due.
  • Work with a professional financial adviser
  • A debt repayment plan that includes a specific date for when they expect to be debt-free.

More detail on each of these tools:

Consolidation of debts at a single low interest rate – with interest rates so low at the present time, it only makes sense to consolidate all of your debt into a single low interest rate personal loan or secured mortgage. Interest payments will be less and more of your money will go towards paying down the debt.
Making extra payments on their mortgage – even a single payment once a year can wipe thousands of dollars in interest of your mortgage and years as well off your mortgage. This is a great way to reduce interest and reduce your debt at the same time.
Compare mortgage products – Whether you are consolidating or just renewing a mortgage, a little competition between mortgage companies can sometimes save hundreds if not thousands of dollars. Shop around and let your current provider know so they have an opportunity to sweeten the pot.
Work with a professional financial adviser – if you are confused or overwhelmed with your current debt situation and / or savings, speaking to a financial adviser can sometimes help. They can look at your situation without any emotion, focus on the  facts and make the appropriate recommendations. Get two recommendations from two different advisers to avoid any potential of conflict of interest.
A debt repayment plan- develop a debt repayment plan in conjunction with the above strategies that indicates what debt will be paid off when, what debts should be consolidated and what your long term debt plan will be. your financial adviser can help develop this plan, however in the plan must be yours and adopted by you.

Reduce your debts now , by consolidating, low interest loans, make extra payments, comparing loan or mortgage products, working with an adviser and setting up a plan. It may take a bit of work, however in the writer’s experience nothing comes easy unless you put some effort into it.

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Debt Freedom

September 21st, 2012 ernie Posted in Debt Reduction 2 Comments »

Debt FreedomWe all would like to be debt free by a certain time in our lives especially as we get closer and closer to retirement. Managing our debts, whether it is a loan, mortgage or credit cards can be a tough job especially once it gets out of control. For most people, it is always sometime in the future, however the future never comes and we are still aiming for debt freedom ten years later. The only way around this is to have a definite plan that the entire family agrees to and supports. If you cannot make that happen you are going to have a challenge on your hands.

What is Debt Freedom

Most people think of debt freedom as having paid off all of your debts and not having to pay any loan payments or mortgage payments. For many people at all ages this is a tough objective and a small percentage actually achieve this definition of debt freedom by the time they retire.

On the other hand some groups will define debt freedom as everything being paid off with the exception of their mortgage, which has a specific payment amount and a final end date. While this is really not debt freedom, they can comfortably pay their monthly payments and these payments do not hamper their life style in any way.

Regardless of how you define debt freedom, many people are trying to achieve their definition of debt freedom and have found that the following strategies will help them meet their objectives.

Manage Holiday Spending

Holiday spending often puts people off their plans and causes debt to get out of hand.  Spending more than they planned at Christmas, taking a vacation that they really could not afford or spending more than they plan all contribute to not meeting the objective. While it is easy to say, set a budget for your holiday and meet that budget, few people are actually capable of doing so. It takes a lot of discipline and it also takes realistic budget planning as well.

Set a Budget

Set a budget for your holiday as well as everyday life. Be realistic and stick to it. We cannot anticipate everything so every budget should have a contingency built into it, however it does not mean that it automatically will be spent. It is there for the unforeseen and for emergencies. having a budget in the first place means you have thought about were you are spending your money and taking steps to manage it. This is an excellent first step and many people find that they will reduce their expenses just by giving some thought to what they are spending their money on and will reduce it accordingly.

Sticking to a Budget

Sticking to a budget in order to achieve debt freedom is one of the most difficult things to do. But if you have a budget, then you are halfway there. Now it is just to have the discipline to stick with it. Challenge all expenses and ask yourself if you really need this item or service. Can you do without? You may be surprised at how much you can save and free up for other things.

Assess your budget at the end of every week and adjust your future expenses accordingly to bring you back on to your budget target.

Family Commitment

Many budgets fail because they cannot get their families commitment to meeting the budget. If other members of the family control spending,  or portions of it, then unless you get them to join you in meeting your budget, there is little chance you will be able to meet your budget and achieve your objective of debt freedom.

The best budgets and debt freedom plans are fully supported by all members of the family, including your spouse and children.

Unpaid credit cards are a huge issue for many people. Credit card interest rates are very high some as high as 29% and at those rates, if you do nothing else you must pay these off as soon as possible. When you are paying a lot of interest, there is less money available to retire any debt that you may have.

 

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Retiring With Debt

June 21st, 2010 ernie Posted in Debt Reduction 1 Comment »

Retiring With DebtThe following poll by RBC seems to indicate that many Canadians and by extension, Americans, are retiring with some form of debt. This debt includes mortgages, loans, and credit cards. It is a big concern for retiree’s who are worried about whether they can pay their bills while living on a fixed income. This apparently is a lot more common than most people like to admit!

There is really nothing wrong with retiring while still owing some debt, however you must take ownership of it and set up your budget to be able to deal with this debt. Review your income levels when you retire and take the steps you need to be able to pay your debt as well as the remainder of your expenses.

Take the time to read the results of the poll following. We will add a few comments at the end of the poll that we have re-listed here.

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Four-in-ten Canadians retiring with debt: RBC Poll

Inflation and taxes are top concerns for Canadians over the age of 50

TORONTO, April 26 /CNW/ – Four-in-ten Canadians (39 per cent) over the age of 50, who have assets of at least $100,000, retired with some form of debt and one-quarter (22 per cent) entered retirement with a mortgage on their primary residence, according to the first annual RBC Retirement Myths and Realities poll, which examines Canadians’ expectations and experiences in retirement.

The majority of retirees (70 per cent) feel it is still important to be able to save part of their income, yet more than one-quarter (28 per cent) have acquired new credit products since they retired.

“More and more, Canadians are carrying debt into retirement, which is not necessarily a bad thing,” said Lee Anne Davies, head, Retirement Strategies, RBC. “Having access to credit in retirement can be beneficial to managing income and cash flow and provide additional flexibility. To help make your retirement dreams a reality, our advice is to start early and prepare a comprehensive financial action plan that will keep you focused on paying down debt and saving, as well as establishing a budget for both your pre- and post-retirement years.”

Inflation and taxes are among the top concerns for retirees, with more than one-third (35 per cent) worried that inflation will negatively impact their retirement income, compared to 43 per cent of pre-retirees. Six-in-ten (62 per cent) retirees worry about taxes on their income, with two-thirds (66 per cent) believing the percentage of their income required for taxes will rise in the next 10 years. Retirees say they are currently living on 56 per cent of their pre-retirement income, indicating that spending drops significantly in retirement.

“It’s not uncommon to be concerned about maintaining a sustainable level of income in retirement, but costs you never counted on may also arise,” added Davies. “For example, our poll found that almost one-in-five retirees spend over $1,000 annually on prescription drugs. Working with a qualified advisor can help you prepare for taxes, inflation and unexpected costs that may impact your retirement goals.”

These are some of the findings the RBC Retirement Myths & Realities poll conducted by Ipsos Reid from March 10-19, 2010. For this survey, a national sample of 2,143 adults aged 50 and over with household assets of at least $100,000 from Ipsos’ Canadian online panel was interviewed online. A survey with an unweighted probability sample of this size and a 100 per cent response rate would have an estimated margin of error of +/-2.1 percentage points 19 times out of 20 of what the results would have been had the entire population of adults in Canada been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.

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Are You Retiring With Debt

So what should you do if you carry debt into retirement? Pretty much continue as usual provided that you have the income to support the debt and can meet your monthly payments without difficulty.

If your debt payments are hampering your life style and preventing you from doing some of the things that you would like to do in retirement, you may want to think about making some changes. One way or another you should reduce your debt. You might have to use some of your savings, you might have to downsize your home, you might have to go back to work part time or full time. Some people will have to do all of these things to rid themselves of debt.

Make it a priority to avoid adding debt, living on a fixed income it will be even more difficult to pay off additional debt as it builds up. If you have high interest debt such as credit cards, consolidate these into a loan or line of credit with a low interest rate. Destroy the credit cards or just keep them for emergency situations. Credit cards routinely charge in excess of 18% interest and at these rates, you will have a difficult time paying them off. Loans and lines of credit are currently around 5 or 6%. Loan interest and loan payments are much lower allowing you to reduce your principle much faster.

Add your comments to our post. We would be happy to consider them and add them to our blog. All reasonable and constructive comments accepted.

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