Like many of their generation, my parents despised debt. When they were able to pay off their mortgage, they did, what they called “burn the bill”.
Hard times have forced many people to retire with debt. This will make their retirement difficult from a financial point of view. Social security and pensions only cover part. The debt problem has only worsened in recent years.
A recent study found that the average retiree has about $ 19,200 in non-mortgage debt and increased their debt by $ 9,779 in 2020, a 104% increase from 2019. Some 60% of retirees say they have difficulty paying their debts. basic necessities, including medical bills (47%), groceries (43%) and credit card bills (37%).
Some debts come with sudden unemployment or medical expenses. Discretionary spending can contribute to credit card bills. Fortunately, if you plan well before your retirement, there are many forms of debt you can avoid. Here is what you can do now:
- Contribute to a health savings account. These vehicles can cover a wide range of health-related expenses not covered by your current plan. You can contribute $ 3,600 annually to an individual program and $ 7,200 to a family plan. Contributions are tax exempt. If the withdrawals are used for health care expenses, they are also exempt from tax.
- Avoid credit card debt. It’s the costliest debt, and you can’t even deduct it from your federal tax return. Find a way to pay off your balance each month. Use debit cards.
- Create a debt elimination plan. You can prepay the principal of your mortgage every month to reduce your balances and save thousands of interest. You can repay installment loans. Try to pay in cash as much as possible.