Who doesn’t want to have the perfect life by 50? You’ve worked for the most part of your life and you’re gradually approaching the time when all you need to do is sit, relax, and reap the benefits of your hard work. It is however unfortunate that most Americans fall into a debt pit hole that they’re unable to come out from.
According to research findings, the average American has $90,460 in debt. This includes various types of debt products including mortgages, credit cards, personal loans, and student debt. In a typical case scenario, those within the age bracket of 20 to 29 years old are often tied down by student loans. And as they advance in age, they find themselves taking on more mortgage and credit card debt.
But no one wants to be in debt forever. If taking on debt is considered a trend in America, at what age are you expected to be debt-free? In 2018, Kelvin O’Leary, a personal finance author, said that 45 years old is the ideal age to be debt-free.
This means that if you’ve made the right financial choices, by the age of 50 you should be in a place where you are debt-free, and your retirement savings should be enough to give you a comfortable life. In this article, we share practical steps that will help you to be debt free by 50. So, let’s dive in!
Table of Contents
Decide when you will retire
When do you want to retire? What kind of life would you like to have after retirement? As you answer these questions, bear in mind that you need to be able to afford the life that you want to have. In deciding when to retire, here are some things to look out for:
1. Social Security benefits
The first thing you may want to consider when deciding your retirement should be your Social Security benefit. Your full retirement age will determine the amount of Social Security benefits that you will earn. The earliest retirement age that you can collect your Social Security benefit is 62 years old.
But you don’t have to collect it until you’re ready to retire, especially considering that you’ll get a larger amount by claiming your benefit at a later age. The main purpose of Social Security benefits or any other fixed income from annuities or pensions should be to cover basic expenses, such as housing, utilities, and food.
2. Potential source of income
The second step you should consider is your potential source of income during retirement. Two basic sources of income during retirement are your Social Security benefits, and your pension funds. By using an online calculator, you can determine how much your Social Security benefits and pension allowance will be. Compare the amount with the income you’ll need for retirement, and see if it still falls short.
If you’re falling short, you still have time to adjust by working longer, buying an annuity, or saving more. Fortunately, federal law lets people over 50 contribute more than the standard limits to 401(k) plans or IRAs. For example, a 50-year-old can contribute $6,000 per year above the regular annual cap of $18,000.
3. Seek professional help
Finally, you’ll need to seek professional assistance. This is because retirement is a huge decision that impacts significantly on your future. You need the help of a qualified expert to make the best decision.
Make being debt-free your ultimate goal
Before retiring, being debt-free should be top of your priority list. You don’t want to be in a position where you have to use your retirement income in clearing debts when you would otherwise be living your dream life.
To live debt-free or pay off an existing loan, there are certain things you must do. They include the following:
- Use a portion of your savings to pay down larger debts.
- Based on your payment history, try to negotiate a lower interest rate with your creditors.
- Consider reducing your monthly payment with a payoff strategy involving a lump sum.
- Sell some of your assets for cash.
- Make more money.
- In extreme cases where you have no income and a lot of bills to pay, you can file for bankruptcy to discharge your bills entirely.
- You should consider performing a credit card balance transfer.
- Consider refinancing your mortgage if you obtained your mortgage before the Great Recession when rates were close to 7% at the time.
- Prioritize paying down the debt with the highest interest rate.
Cut back on extra expenses if possible
Downsizing the expenses you make before retirement is another important step you can take. Take stock of your necessary financial obligations outside your retirement needs, and cut down on the rest. You may still be paying for your child’s college tuition, and perhaps caring for your parents. These responsibilities are necessary, of course, but you should do what you can to protect your retirement.
Think about ways to reduce the cost of college, like opting for a year or two at community college, or having your children live at home during their studies to avoid the steep cost of room and board.
You can do the following to help cut down on your expenses:
- Create a budget.
- Take steps to help maintain your health.
- Avoid high-interest debts.
- Pay off your mortgages.
- Avoid student loans.
- Seek professional assistance.
Take care of yourself
While you may be preoccupied with several preparations before your retirement, it is also important that you take care of yourself. Some financial advisers recommend signing up for long-term care insurance, which helps pay for assisted-living costs or at-home health care.
There’s no question that you’ll pay less for a policy if you obtain one before the age of 60, as that is when rates tend to shoot higher. A few other measures you can take to ensure that you are well taken care of include the following three steps.
1. Have a plan
As casual as this sounds, this is an important step you would want to consider in the coming years. Here you set out time to consider what you want to do after retirement, where you want to live, or even if you will need an assisted-living facility.
2. Build your savings
Savings are important for both yourself and those who are important to you. Imagine having health challenges or having any of your loved ones in a fix which you need to attend to and you do not have savings upon retirement? Tragic, right? Savings will help you make prudent decisions that will have an effect in years to come.
3. Discover other skills
Here you need to ask yourself what you can do. This does not necessarily have to be work-related but may include any skill that can keep your mind engaged and possibly improve your standard of living.
Let’s make it work for you
With less than half your working life left, your earning power right now can give you the financial leverage to protect the assets you’ve built or make up for past mistakes and unforeseen events. Paying off debt is personal and requires a lot of determination and discipline.
Consider seeking the help of a financial advisor to know what works best given your current financial situation. At MoneyLion, we make it easy for you to reach your financial goals with fully-managed investment portfolios and zero management fees.
When can I get my Social Security retirement benefit?
The earliest age to receive your Social Security benefit is 62 years old. However, if you wait until your full retirement age, which can be anywhere between 66 and 70 years of age, you will receive delayed retirement credits, which increase the value of your Social Security benefit.
What is the maximum Social Security retirement benefit payable?
The maximum benefit you get depends on the age you retire. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at the age of 70 in 2022, your maximum benefit would be $4,194.
Must I pay Social Security taxes on my earnings after full retirement age
Yes! Social Security tax is to be paid by everyone who is employed irrespective of age or eligibility. The only few exemptions are for certain members of religious groups that have been exempted.