5 Steps Towards Debt-Free Retirement

Retirement comes to people in different ways. Some look forward to it, while others dread it. It’s a season in life when you stop actively working and feed off your savings. Despite your emotions toward retirement, it’s important to prepare for it.

The number one way to prepare for it is to have your finances in check. How, you might wonder.

Here are steps to guide you toward debt-free retirement:


  1. Eliminate Debt

Debt is any money you owe anyone or an institution. It’s important to eliminate it before hitting retirement. Debt takes away money from you. Since your retirement money is fixed and you aren’t earning income anymore, you don’t want it reduced due to debts. Although staying away from debt can be challenging, there are many ways to eliminate debt once you already have one. One, consolidate your debt.

What is debt consolidation? It entails grouping all your debt into one. This is more manageable since paying one debt over several can be less burdensome. The other way to eliminate debt is first to pay high-interest loans. The aim is to avoid paying too much interest that increases with each passing day.

Alternatively, pay high and low-interest loans simultaneously. However, allocate more for the high-interest ones than the low ones. Paying both showcases achievement with debt repayment, motivating you to clear off the debt prior to retirement.


  1. Work With A Budget

Budgets play a major role in guiding expenditure. As you approach retirement, you must be mindful of how you spend your money. You don’t want to spend it all today and have nothing left for retirement. Hence, the need for a budget.

Create your budget by first defining your needs, wants, and luxuries. Your finances should always first cater to needs, then wants, and lastly, luxuries.

The secret to having an effective budget for retirement purposes is to not live beyond your means. Do this by scrutinizing each expenditure. Do you have to engage in luxury activities or buy luxury items monthly? Can you reduce your wants? These are the questions to ask if you don’t want to spend more than what is needed.

It’s best to stick to your budget religiously. It’d help to have someone to hold you accountable for maintaining your budget.


  1. Get An Affordable Mortgage

Owning a home is said to be the American dream. It’s a dream people want to achieve before retirement. In most states, people buy houses through mortgages. A mortgage is a loan you use to acquire a property. You’ll make agreed monthly payments until you pay off the loan. The property acts as the loan’s collateral. Failing to pay your mortgage will mean losing your home to the lender.

Since a mortgage is a debt, you want to pay it off before retirement if you’re to live a debt-free retirement. You’ll only manage to do this if you get an affordable mortgage.

Make your mortgage affordable by ensuring all the housing costs don’t exceed 30% of your net income. Also, consider making a big downpayment, preferably 20-30% of the housing cost. Doing this reduces the mortgage payments you’ll pay. It quickens the payment before retirement.


  1. Have An Emergency Fund

As the name suggests, it’s a fund that caters to unforeseen events that require funding. Yes, you might have planned for retirement by having a budget and eliminating debt. But assume your car breaks down and requires repairs. Besides a car, you or your partner could get sick, and the medical insurance isn’t enough to pay the bills. In such situations, there’s a high probability of taking debts to meet these needs. However, it defeats your purpose of having a debt-free retirement. Hence, the importance of an emergency fund.

Creating an emergency fund requires you to set aside money regularly for emergencies. How much should you set aside? It’s best to have the funds equate to four to six months of your monthly expenditure. Such an amount cushions you financially, no matter the emergency.


  1. Set Up A Savings Account

A savings account enables you to put away some money for retirement without neglecting yourself today. Create this account by deciding the percentage of your income to set aside as savings. Your savings should be the biggest percentage of your budget.

A savings account works best if it generates money for you. Therefore, find an account that will earn you high interest. Since you’re saving for retirement, consider a locked savings account. Here, you can’t withdraw money saved until after the agreed period. It keeps you consistent with your retirement saving.

It’d help if your savings account was a retirement one. The latter has more benefits than the former. Also, make an effort to increase your retirement savings. Do this by increasing your income. The more you earn, the more money you’ll free up for your ideal retirement lifestyle.




Now, you have learned that retiring debt-free is quite achievable. It only requires you to work on your financial habits consistently. Do your research and listen to podcast retirements and read retirement news like Retire Australia.




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