Retirement. We dream about it, whether it is five years or 15
years away. We fantasize about the day when we march into the
boss's office and declare that we are retiring in one month and
plan to take off to Bora Bora to unwind from decades of stress
and office politics.
Retirement can indeed be the "golden years," if you are not
bogged down with money issues such as keeping current on
mortgage payments, affording medical insurance, buying a car,
taking vacations, enjoying golf, enrolling in continuing
education, etc.
Retirement means that you will need less money because expenses
such as professional attire, lunch, weekly parking and commuting
gas will be gone. However these expenses will be replaced with
other expenses.
It is estimated that the average American will need 70% of the
income that they earned during their peak earning years for
retirement. In other words, if you make $50,000 per year when
you are nearing retirement then you will need approximately
$35,000 per year as a retiree. This may seem like a lot of money
but consider these facts:
Medical Expenses. Your medical expenses will be higher
since you are older. In addition, since you are not working, you
may have to foot the entire bill yourself. To give you some idea
of your medical expenses per month, a family of two on a Kaiser
Permanente plan with a copay of $10 - $20 will be around $1050
per month. This is a nice chunk of change.
Leisure Expenses. Now that you have all the time in the
world, you will want to do something nice for yourself. Your
leisurely activities such as golf, vacations, and shopping will
take up a bigger portion of your budget. You may also want to go
back to school and take that Astronomy or photography class that
you always wanted to take.
During you working years your monthly expenses looked something
like this:
· Mortgage and Insurance
· Auto Payment and Insurance
· Utilities
· Food
· Credit card
Some of these expenses are what I term "persistent" expenses,
meaning that you will always have them. These expenses include
items such as insurance, utilities and food. The other types of
expenses are those that you can purge permanently, namely:
Credit card, Mortgage and Automobile loans. Relieving yourself
of these debts should be your number one priority in the quest
to retire debt free.
Credit Cards. This is your number one enemy expense.
Obliterate it from your life. If you walk away with one lesson
after reading this article, let it be the motivation to get rid
of credit card debt before you retire. Credit management has
become one of the biggest challenges facing Americans today. It
is estimated that 30 million Americans struggle with some form
of bad credit stemming from living beyond their means via
excessive credit card debt.
Take the time to Analyze your
current debts and create a systematic plan to achieve a
$0.00 balance on all your open accounts.
Automobile Payments. If you are carrying a car note, try
to pay it off before you retire. You do not want a car payment
looming over you at this point in your life. A car does not
appreciate - you will not get much value out of it, once you
drive it off the car lot. It is a necessary evil. After all, how
will you visit those grandkids now that you have all this extra
time?
Mortgage Payments. This is your biggest and most
important expense. You need a place to live. There is no way to
get around this expense but you can get rid of it. Start making
an extra mortgage payments every year. If your mortgage is $1000
per month then you should send an extra $1000 to your mortgage
company at the end of the year. In lieu of sending a big check
at the end of the year, you can send an extra $85 every month
for a total of $1085 per month. On a 30 year loan, this will
reduce your mortgage term to approximately 23 years.
Once your mortgage is paid off, your biggest expense will be
gone. If you run into financial difficulties in the future, you
can always take out a reverse
mortgage or a home equity line of credit (HELOC).
TIP: Many parents fall into the trap of paying for their
children's college education before getting rid of their debts.
Remember that your children have a stronger earnings potential
than you. As a retiree, your ability to work in a fast paced,
high paying job is limited in comparison to your children. In
addition, a good credit file is vital at this point because you
need to retain the ability to apply for credit in case of
emergencies. Eliminating your "permanent" these debts will
ensure that you are in good credit standing before you retire.
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