This is a guest post by Barbara Delinsky. If you want to guest post on this site, check out the guidelines here.
A rising number of individuals are beginning to take their retirement funds in their own hands. If you’re thinking that the task is pretty simple, stop and think again.
While saving money for your retirement days isn’t a difficult job, it’s all a question of choice.
For example, if you’re making plans for your retirement but have a lot of debt, the obvious question would be – should you pay off all your debts, or totally disregard it while you save money for those golden days of your life?
Now, the answer will vary from person to person, since everyone has his or her individual debt circumstances.
For people crushed under an overwhelming amount of debt, there are various debt relief options available in the market. Based on an individual’s debt situation, one may opt to settle on debt consolidation, debt settlement, debt management, debt negotiation, or maybe even bankruptcy.
With the pressing need to save for your retirement days, comes another unavoidable fact: retirement plans are important for your future, but debt is always hovering over your head. Now, which one do you handle first?
Before coming to a decision, you need to consider both sides of the question.
One big advantage of supporting retirement investments early in life is that you’re able to maximize the long-term growth of your investments until retirement.
Remember that a person who started retirement savings at the age of 40 is making yearly retirement investments that are twice as hefty as the one who started at 25, and still he has significantly less savings by the time he is 65. This is the reason why retirement specialists and financial planners are in strong favor of starting retirement savings early.
So, can you just save for your retirement days and forget about your debt for the time being?
Investment return is that one crucial factor that can devastate the best designed retirement plan.
You can sketch out a plan that will be based on standard averages, but you can never be sure how that’s going to work out in reality and especially over shorter periods of time.
What if a 25 year old started saving 10% of his yearly earnings, but the stock market goes flat for the initial ten years?
This was the scenario in the 1970s and the first ten years of the 21st Century. Once the initial ten years of the retirement plan is over, the 25 year old would hold a little extra than the built up value of his investments.
Now, would that change the viewpoint? The answer would possibly be yes, if he had debt.
For instance, if the 25 year old had a sizeable amount of debt when he started saving for retirement, he would have shelled out far more in interest than he earned on his investments. Although there is no guarantee of future investment operation, repaying debt offers an assured rate of return—the exclusion of interest on the debt that was reimbursed.
Repaying Debt Opens Up More Funds for Retirement Investments Later
Saving early and regularly for your retirement plan is the favored method in most cases.
However, it’s also important to note that individuals who don’t have debt are typically the ones who are capable of saving huge amounts of cash.
When you pay off debt, you automatically cut your cost of living that leaves you with more funds to add to your retirement savings.
Once your debt is reimbursed, you can save a substantial amount of money just by transferring your debt payments into retirement savings. Although you may not always think this way, you’re actually liquidating debts that increase net value.
Debt Free Retirement
When it comes to retirement planning, one of the underestimated aspects is to plan to retire in a debt-free state. The less money you require to pay for debt in retirement, the fewer earnings you’ll want.
Repaying debt is an excellent means of lowering your cost of living to fit in with your retirement earnings and assets.
When you pay off debt early in life, you’re able to set a prototype that you’ll carry over into your retirement years. Conversely, if you don’t pay off debt early in life, chances are that it’ll follow you straight into your retirement days.
Which Path Should You Tread On?
Apart from anything else, the answer to this question depends on two vital issues: how much debt do you hold, and is your earnings sufficient enough to help you repay your debts and subsidize your retirement?
In case you have a massive amount of debt, you’ll obviously want to pay that off as soon as achievable. Nevertheless, if you have adequate income to accomplish both, then that’s the perfect way for you. As a matter of fact, the debate is only applicable when you don’t have sufficient income to perform both all together.
About the Author: Barbara Delinsky is a writer for various online financial publications, specifically focusing on household financial issues. She enjoys jotting down anything related to personal finance and micro-economy. Through her articles she guides people to get debt relief and helps them to achieve financial freedom.