Does a debt-free life seem out of reach? Wondering if it’s possible to be debt free by 50 years of age? Between what you owe on your home, cars, credit cards, or student loans, being free of debt may seem like nothing more than a dream. Carrying debt into retirement can cause severe financial stress. If you take active steps, can you be debt free by 50?
What does retirement look like for you?
We all see retirement through a different lens. Do you plan to quit your job as soon as you hit 62 years old? Or are you the type to keep working as long as you can? Will you move to a retirement community or stay in your house? When deciding when and how to retire, here are some things to keep in mind.
1. Social Security benefits
When planning your retirement, consider how much you will collect in Social Security benefits. Social Security benefits and other fixed income from annuities or pensions are typically used to pay for basic expenses, such as housing, utilities, and food.
The amount of Social Security benefits you receive is based on when you retire. Once you reach your full retirement age, which is 67 years old, you collect your full benefits. But your Social Security benefits are reduced if you retire early at 62 years old and start collecting.
2. Potential source of income
Explore other potential sources of income during retirement. In addition to Social Security, will you receive payments from a retirement plan? Or, do you have other sources of income that you can count on?
An online calculator can estimate how much you can expect to receive in monthly social security and pension benefits. You can then compare this estimated income to how much you expect your living expenses to be.
Don’t despair if your income isn’t enough to pay your bills. There is still time to bump up your retirement income. You may choose to work longer, save more money, or contribute more to your retirement account.
Taxpayers can contribute up to $22,500 to their 401(k) plans in 2023. If you are 50 years or older, you can make an additional $7,500 catch-up contribution to your 401(k) plan.
3. Seek professional help
Besides investing money into retirement accounts, younger people have yet to learn what is involved in retirement. Money, health care, and housing are among the many decisions you must make. A qualified expert can help you make these decisions.
Average age to be debt-free
Retirees often live on a fixed income. If you are saddled with debt when you retire, you may need more money to cover your living expenses and pay what you owe.
The average age to be debt-free can vary, so it’s a good idea to strive to be free of debt before you retire. Even if you start this path later in life, you can still rid yourself of debt.
- Pay down debt with the highest interest rates first.
- Consider refinancing your home if you can get a lower interest rate.
- If you have high-interest credit cards, consider transferring the balances to a card with a lower interest rate.
- Raise some extra cash by selling unused items.
- Earn more money.
- Use a portion of your savings to pay down larger debts.
- In extreme cases where you have no income and a lot of bills to pay, you can file for bankruptcy to discharge your bills.
Cut back on extra expenses
The demands on our time and finances change as we get older. You may be putting kids through college or caring for aging parents. College and healthcare can be expensive, so finding ways to reduce the financial requirements are helpful. Consider community college or asking family to help you care for aging parents.
You can also take control of your expenses when you:
- Create and stick to a budget.
- Prioritize your health and wellness.
- Avoid unnecessary spending.
- Pay off your mortgage.
- Stay away from high-interest loans.
Whether you are trying to get your debt under control or preparing for retirement, it is helpful to speak with a financial planner, advisor, or other professional skilled in this area.
Take care of yourself
It’s easy to get caught up in finances as you prepare for retirement. But try not to lose sight of yourself. Your health needs may change as you get older. A long-term care insurance policy can help pay at-home and assisted-living care costs. You’ll spend less per month for a long-term care policy if you buy it before you hit 60 years old.
1. Have a plan
Take the time to think through what you plan to do when you retire. Will you volunteer your time or keep working? Do you plan to travel? Will you keep your house or move to something smaller?
2. Build your savings
Savings can be critical to facing life’s challenges. A health issue, accident, or unexpected bill can wreak havoc on your life. Stashing away funds can help you stay on top of the unexpected.
3. Discover other skills
Are there other things you are good at that you haven’t had time to develop? Activities don’t necessarily have to be work-related but may include any skill that can keep your mind engaged and improve your standard of living.
Strive to be debt free by 50
Even if retirement is a long way off, paying down your debt frees up your life. You are no longer burdened by what you owe. Instead, you can put your money to better use. When you take clear and decisive steps, you could be debt free by 50 years old.
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.