Reducing Debt for a Worry-Free Retirement
Debt is something that you do not want when reaching retirement. It can drain your funds that are supposed to sustain you for the rest of your life. But reducing debt before or during retirement can be difficult. Most advisers recommend first paying off debt with the highest interest rates, but Guy Baker, a financial planner in Irvine, CA, suggests to start small. He says the best way to get rid of debt is to pay off the lowest debt amount first while making minimum payments on the rest. When that is done, work to pay off the next smallest debt. Gary Alt, a financial adviser from Pleasanton, CA, believes with the burning desire to be debt-free any debt reduction plan will work. For investors with a high net worth, Alt thinks it can make sense to retain a mortgage if it has a low interest rate and a favorable housing market allows a return on investment higher than the after-tax cost of the loan. It is also important to look at a comprehensive financial plan because it will provide an overview of where you are now and how your future could be affected with the debt. In a typical financial plan there is an outline of your net worth; what you own, and how much you owe, as well as a cash flow statement of current income and expenses. Then a strategy to reduce your debt is developed based on that. Part of this is looking where expenses can be reduced. It is important to get in this habit while still employed because it is good preparation for a possibly reduced spending rate in retirement. An adviser can help create this plan as well as monitor is to make sure clients stay on track or help make any other adjustments that are needed. One important thing to keep in mind what you need versus what you want and can maintain in the future. It might be wise to sell assets that are too expensive and rarely used to reduce retirement debt and enjoy the time instead.