One of the keys to a happy retirement includes not having retirement debt. However, a number of older homeowners may feel financially unprepared when entering retirement.
Seniors typically choose to live off their savings with some help from Social Security but for those who do not have substantial savings, facing retirement can be frightening.
Fortunately, even if savings are not as significant as hoped for, there are several options to make the best of the situation.
If you have not yet entered retirement, there are some things you can do to better prepare yourself financially. One of the best ways is to eliminate as much debt as possible before entering retirement.
Eliminate credit card debt Credit cards can be great to use for emergencies. But what happens when the cost of the emergency is substantial or you have another emergency before you can pay the last one off? If money is tight, some people use credit cards to help ends meet and can end up with huge credit card debt. Research and advocacy group Demos found that people ages 65 and up have an average of $9,300 in credit card debt.1 To provide context, this is the most credit card debt found out of all age groups.
Manage your mortgage Mortgage debt is often the largest debt we will ever have. For people that purchased a home later in life or who refinanced their mortgage, heading into retirement with substantial mortgage debt is fairly common. A study by AARP showed that 6% of people 50 years and older had seriously delinquent mortgage debt in 2011. Most seniors have less income during retirement and paying off mortgage debt may be even more difficult.
Do not take on extra loans College costs are rising and many parents feel like they should take on some of the cost for their child’s education. Prior to college, decide what you will comfortably be able to contribute to their school fund. Make sure your child applies for scholarships and grants and explain that they will be responsible for a part, if not all, of their school costs. 90% of private loans now require a co-signer.2 Parents and grandparents should consider the effect of taking on school debt or any other debt for loved ones.
Determine your financial readiness One of the best things you can do to prepare for retirement is to meet with a financial advisor who can discuss your current financial situation and future goals. A financial advisor will give you firm amounts that you will need to have saved to retire in your current lifestyle. They will also be able to refer you to organizations that cater to seniors who need help with debt management and affordable health care or housing options.
If you’re already enjoying retirement or it is in your near future, there are still options available to be financially comfortable.
Determine the best time to take Social Security You probably already know that delaying your Social Security benefits increases the amount you’ll receive. The earliest you can receive benefits is at age 62. However, your benefits will be greatly reduced than if you took them later. Again, speaking with your financial advisor can help you decide when the best time is to begin taking Social Security benefits.
Consider a working retirement Some retirees continue to work part time throughout their retirement either because they enjoy working or because they need the income to make ends meet. Working may also have the added benefits of a discounted employee meal plan and health insurance benefits, both of which can offset monthly costs.
Take a reverse mortgage Reverse mortgage loans are available to seniors’ ages 62 years old and older who have significant equity in their home. Instead of making monthly payments to pay off the mortgage, the funds from a reverse mortgage loan pay off any existing mortgage and provide a supplemental income to the borrower for the life of the loan. If you plan to live in your home for many years to come, a reverse mortgage loan could be a good option.
Reassess your budget Working with a financial advisor can help determine a comfortable monthly budget for many seniors facing a decreased income during retirement. Whether budgeting includes something simple like limiting the amount of money spent on eating out or something more significant like moving to a smaller home or selling a vehicle, budgeting can greatly affect your retirement income.
If you are facing retirement and are unsure about your finances, there are options that can increase your retirement income. Meeting with a trusted adviser, budgeting and getting a reverse mortgage can help retirees live comfortably for years to come. To see how much you may be eligible for, scroll up this webpage and use our reverse mortgage calculator, located on the right side.