If I read another article telling me retirement will be a bust unless I’ve saved a million bucks, I’m going to puke. I’m 61 and my retirement account is so small it faces extinction if I buy a new car.
On most days I’m not an idiot. Sure. I wish I had a bloated IRA ready to fall into my lap at age 65. But that’s not my reality. And yet I’m convinced my retirement prospects might be brighter than some who have a million bucks in a retirement account. How’s that for a bold statement?
Here’s my secret for an optimistic retirement: retire debt free.
One of the reasons people need a large cash reserve heading into retirement is to finance their debt. Think of how much money flies out your window each month to support your indebtedness. Do the math. Add up your total monthly payments to creditors. What’s your number? When you retire, if that is still your number, you might need a million bucks.
Now, try to imagine how much money you will need in retirement without making monthly payments to lending insitutions. See what I mean? The potential difference is huge.
The best thing you can do today to prepare for retirement tomorrow is get out of debt. [Click to Tweet]
About 8 years ago I took a Dave Ramsey Financial Peace course through my local church. At that time I had gotten far in debt. I owed on a house, lake cottage, a car, a motorcycle, and various credit cards. Now all of that debt is gone except for a small mortgage payment.
It takes hard work. You need a plan. Extra income from a part time job might be in your future. But whatever it takes, enter retirement as free from debt as possible.
Here’s an example.
When I got serious about debt I owed about $9,300 MORE on my car than its value. (You can tell I am a financial genuis.) The monthly payment was around $400 each month. Here’s what I did. I went to the bank and got a $10,000 loan. When I sold my late model car I used the borrowed money to pay the difference so the title became clear. I took the remaining $700 and bought an ancient Honda with rusted wheel panels and over 150,000 miles on it. Then I used the money allocated monthly for my old car payment and paid off the $10.000.
We drove that car for 3 years and put 100,000 miles on it. Yes, we had a few repairs. And one time the front wheel broke off when I turned a corner. But think of it. My car payment over those 3 years would’ve totaled $14,400–and I still had two more years to pay on it. My Honda, including repairs, cost around $1000. Since then I’ve always paid cash for my car. Sure. I drive beat up junkers. But I wouldn’t trade my paid off 2003 Dodge Caravan with 160,000 miles on it for your fancy new car and your monthly payment.
I’m a long way off from having the million bucks in the bank I need for retirement. But I am not too worried. Debt free living is like money in the bank as I head into reitrement.
You can do this. Retirement’s coming. Ditch the debt.
Are you willing?