Eliminating Your Retirement Debt
To accumulate more than enough money for your golden years
, you need to eliminate retirement debt first. Although this effort may seem almost impossible for those who have large amounts of money owed to banks, their credit card companies, or other lenders, it can be made more manageable if you start prioritizing saving up money for retirement and investing. Here are a few things you can do to clear up debt or cut it down to size before you quit the workforce:
Prioritize retirement contributions over discretionary expenses or luxuries such as buying a new set of furniture or going on a trip abroad. If you set these expenses are priorities now, you will probably have a hard time covering the basic expenses you will encounter when you retire. Although you should not put retirement contributions at the top of your list, you should treat it with the same focus as you would your utility bills and make it part of your regular budget.
Lower the likelihood of missing out on retirement savings contributions by automating the process. Automatic contributions make it easier for the busy employee to invest money towards retirement. One of the most convenient ways to do so is by changing how you contribute to your 401K. Many employers will do this off the bat as soon as you start working for them, but if your company has not, you can always contact the payroll or human resources department. After activating automatic payroll contributions, you will get deductions from your paycheck regularly.
Make the most out of tax-advantaged retirement savings accounts and plans. Some retirement accounts, such as IRAs and 401Ks, can make the participant eligible for some tax benefits. For example, conventional 401Ks and IRAs allow you to make tax-deferred contributions, meaning you will not have to shell out money for annual taxes up to the point that you take distributions from your retirement account. The Roth versions of these accounts get you taxed when you put in your contributions, but will not be subject to tax when you withdraw them in retirement.
Stay away from your retirement account balance. The money in your account needs time to invest and grow, and will be much more substantial if you do not withdraw until you reach normal retirement age. There are also a lot of tax benefits from long-term retirement account contributions, which indirectly help plump up your nest egg. You can stand to lose anywhere from 30-40% of the withdrawn amount to penalties and other fees if you take early distributions, so avoid touching these accounts; you will add to your potential shortfall and not eliminate retirement debt.
by: Katherine Smith
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