The Balancing Act

Many younger workers have the task of balancing debt reduction with retirement savings. Often the debt they have accrued is related to student loans and credit cards. Many of these workers believe they need to pay off their debt before they begin actively saving for retirement.

However, to be able to save a sufficient amount for their golden years, young workers are going to need to save while also paying off debt. Here are some ideas on how to do that:

  1. Focus on High Interest Debt

Getting out of high interest debt should be a priority. Credit cards are usually the main culprit with interest rates as high as 18 or even 25 percent. Once rid of high interest credit card debt, try to stay out of it. When these debts are out of the way, there will be more funds available to allocate to retirement savings.

  1. Be Smart with Loans

Often, loans are just a necessary evil in life. This is especially true when making large purchases, such as buying a new car. Try to find the best deal possible, with smaller payments. Sometimes this means buying a used car or a less expensive option. The larger the down payment, the smaller the monthly payments. With smaller payments, more money can be put toward retirement.

  1. Set Realistic Goals

Instead of having an illusion of spending very little in retirement, plan for spending more. The average annual spending for those age 65 and older is $40,938. Workers need to realize they will probably spend more and account for that in their savings.

This is especially true of spending money on healthcare. Many retirees do not account for medical needs when saving. One way to be cognizant of upcoming healthcare costs is to start a health savings account. These accounts help retirees cover the medical costs rather than dipping into their retirement savings.

Often, younger workers are only encouraged to take advantage of a 401(k) match plan through their company. While this is a great tool, opening a separate account in addition to a work-sponsored one can bump up their savings potential. Visit Mountain West IRA’s website to learn about their retirement plans and investment options.

Working After Retirement

Some retirees find fulfillment in continuing to work after retirement. And it might not be such a bad idea to consider working part time after you decide to retire. There are numerous benefits that can come from it.

If you aren’t comfortable with where your retirement savings are sitting, part-time work could be a good option for you. Hopefully you set up some type of retirement plan whether it be a self-directed IRA or 401(k), but if not, you could be in the same boat as a lot of households between the ages of 55 and 64 that only have $12,000 in retirement assets. Continuing to work could help increase your nest egg and make retirement a bit more comfortable.

Do you currently have a mortgage? Almost half of homeowners age 62 and older have a mortgage. If you have to withdraw from your retirement account to pay off your mortgage, you’ll have to pay more taxes on your retirement distributions. Finding part-time work to pay off the mortgage will reduce your cost of living during retirement.

Sometimes you can be lucky enough to find a part-time job with health care coverage, which can help cover your health care costs. Medicare kicks in at 65, but if you decide to retire before you reach that age, you’re on your own. Setting up a Health Savings Account is another way to help take care of health care costs.

For decades, your purpose in life was your career. It can be daunting leaving that behind and trying to find a new purpose. Working-part-time can help ease that transition while helping to fill your days and bank account. Along with giving you a purpose, continuing to work can help keep you in shape physically and mentally.