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How Debt Can Affect Your Retirement

How Debt Can Affect Your Retirement Fitzwilliams Financial

Many Americans are approaching their golden years with some level of debt. In 2016, nearly 61% of US citizens were transitioning into retirement while still bearing debt.[1] While one might assume that expenses would naturally decrease after retiring, that isn’t always the case.[1] Sometimes, your costs will remain constant, decrease, or they may rise. It varies from situation to situation, and it’s impossible to accurately predict your monthly expenditures during retirement. You can make an educated guess based on your current lifestyle and budget, but there isn’t any exact calculation that assures complete financial predictability throughout retirement life. Therefore, considering a strategy to reduce your debt might be beneficial when you are establishing plans for retirement.

Credit Card Debt Can Stack Up

For starters, keep tabs on your credit card debt. Credit cards are notorious for their steep interest rates, so if you’re burdened with substantial credit card debt, it could help to reduce it, especially on a fixed income. Although each circumstance varies, a significant amount of credit card debt can potentially lead to long-term financial troubles. It might also be worth repaying student loans and assessing your mortgage situation for similar reasons.[1]

With the Right Strategy, Retirement Funds Can Help Address Debt

An alternative approach might be to address your debts using a portion of your retirement savings. However, it’s important to note that this method is complex and requires you to understand the tradeoffs of paying off debt in the short term with funds that are meant for your long-term retirement. The complexity does not necessarily mean you shouldn’t explore it; it merely means that determining which choice serves you best can be challenging, given that the wrong move for you could be financially costly.[1]

You may also consider your Social Security claiming strategy and timeline as a factor in helping you reduce or eliminate your debt in retirement. The extra income could be the added boost you need to get your debt level trending down and potentially eliminate it.

Regardless of your specific circumstances, vigilance over your debt is crucial as you near retirement. The strategies you employ to deal with your debt should be comprehensively tied into your overall retirement plan.

Handling your personal finances in retirement is not always easy. If you’re seeking advice on optimally managing your personal financial affairs, don’t hesitate to contact our experts for a no-charge assessment of your circumstances.

 

When consumer confidence hits a multi-decade low, it is completely natural for you to feel a sense of hesitation about your hard-earned savings. If you are approaching retirement, seeing prices rise while trying to figure out the right time to adjust your portfolio can feel incredibly stressful. However, this low confidence might actually be introducing a healthy dose of critical thinking into the market right now. Instead of rushing into investments out of a fear of missing out, I am seeing people take their time to analyze their moves before they act.

This deliberate pace could be a vital asset as we prepare for what might be a historic three trillion dollar wave of tech IPOs. The names hitting the market are incredibly popular, and the media hype may make you feel like you need to change your entire strategy to get a piece of the action. But we must look closely at the underlying reality: many of these massive firms are not yet profitable. The typical corporate fundamentals simply are not there yet.

Because of this, I believe you should treat these speculative assets with extreme caution, much like money you would take to Vegas. If you want to participate, you might consider limiting that exposure to no more than five percent of a well-diversified portfolio. You should never dismantle a carefully crafted, long-term retirement plan just to follow a market trend. Furthermore, you must realize that extreme trading volumes during these public launches could cause your orders to execute at vastly different prices than you originally intended. It pays to be patient and let the dust settle.

If you have questions about how these shifting market dynamics might apply to your personal retirement plan, our team is always here to help.

Key Takeaways

  • A drop in consumer confidence may encourage a healthier investment environment by forcing individuals to rely on critical thinking instead of emotion.
  • An upcoming wave of massive technology IPOs might generate significant media hype, but these companies may lack current profitability and traditional business fundamentals.
  • Investors should avoid allocating more than five percent of a diversified portfolio to highly speculative, unproven market assets.
  • Heavy trading volume during a major public offering could cause investment orders to execute differently than an investor expects.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment adviser. FWM and Fitzwilliams Financial are affiliated companies. This content is for informational purposes only and should not be construed as personalized investment advice. We do not provide tax or legal advice. Investing involves risk. Media appearances are for informational purposes only and do not constitute an endorsement.
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