Understanding how to handle debt and prepare for retirement in the current economy is certainly much more challenging than it would have been 2 years ago. Many consumers have had to put their planned retirements on hold due to loss of capital assets such as stock portfolio assets. But there are also many consumers who have chosen to go ahead and retire as planned and reduce spending so the retirement savings stretch further.
Managing debt is always a critical issue, but for many today it is mandatory if they expect to survive the recession without losing their homes and other assets. Those who are retiring right now are faced with managing debt on less income just like people who are unemployed or underemployed. There are many retirees who have carefully managed their accounts over the last 20 years only to see up to 50 percent of it melt away.
There are also retirees who had planned on selling their homes to use the money for rounding out their retirement savings or who intended on downgrading to a smaller home. With falling home prices that has become difficult if not impossible for many.
The most recent numbers show housing prices continue to fall. Just recently a U.S. real estate group reported that home prices declined across the nation in eight out of every ten houses for the third quarter of 2009. Home prices are 11 percent lower this third quarter compared to the third quarter of last year according to the National Association of Realtors.
Yet there are plenty of people deciding to go ahead and retire because they have enough retirement savings left if they can reduce spending. That is good news for these people because there are millions of senior citizens being forced into the job market simply because there is no way to reduce their spending.
Cutting back spending takes planning. It also takes an attitude adjustment according to financial planners. Retirees have to look at their spending patterns and lifestyle and decide where reductions can be made. For example, one retired couple gave up a second car or are completing do-it-yourself-projects that lead to lower heating and cooling expenses.
Another way to reduce household debt is to track spending carefully and preferably before, not after, retirement. Gaining control of expenses before it’s necessary to live on a reduced budget can make the transition into retirement much easier. For millions of baby boomers the ability to cut back on expenses enabled them to go ahead and follow through with their retirement plans.
When tracking expenses and debt, divide the items into essential and those that could be eliminated. Health insurance is always an important issue because Medicare does not cover some expenses such as prescription drugs and hearing or vision needs. That means you might need to factor in supplemental coverage.
Cutting back on expenses and debt takes discipline. Debt that can be paid off probably should be – including signature loans, credit cards, and even the mortgage. Entering retirement as debt free as possible is always a wise decision. Some retirees are selling real estate properties they own free and clear and using the money to pay-off remaining debt in other areas.
Retirees who hope to pursue their original plans for activities during retirement can look at other ways to achieve their goals. For example, those who planned on traveling can look for ways to share resources with others such as sharing vacation homes.
Of course there are simple ways to cut expenses to such as cooking more at home, doing your own home repairs, and even reducing investment account fees. Speaking of investments, there is one more recommendation made by financial planners.
Manage your retirement investments carefully and wisely. One lesson many would-be retirees learned when the market crashed is to not keep all their savings in a single account or investment. Investment funds should be split up between different accounts such as short term emergency fund accounts and long term retirement accounts.
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