Top Priorities for Funding your Ultimate Retirement

Credit Cards, Debt, Emergency Fund, Long Term Care Insurance, Mortgage, Roth IRA

February 13, 2020

In my previous newsletter I made the case for how you can refine your spending choices today so you have more money to put toward retirement goals.

That leads to the next ultimate retirement challenge for those of you who are still working: what to do with that extra money.

Here is my prioritized list:


1. Pay off credit card debt. There is never a good time to have credit card debt, but once you are retired this will be a horrible pressure. When you are living on a fixed income the last thing you need is to owe 17% or more interest on unpaid credit card bills.

At the same time, I need you to dig deep and commit to a retirement life where the only credit card charges you make will be paid off in full each month. The worst thing you can do is pay off your credit card bills and then six months later have new unpaid balances. The new you, who is focused on creating the ultimate retirement is not going to let that happen.


2. Build up emergency savings. If you don’t have at least eight months of living expenses set aside, take care of that right now.


3. Pay off the mortgage. As I explain in The Ultimate Retirement Guide for 50+ deciding where to live in retirement is going to have a huge impact on your finances. I know many of you want to stay put. I also know that moving can be a fantastic way to reduce your expenses and settle into a home that will be practical for an older you. In the book I ask everyone to take the time to seriously and carefully review if staying put makes financial, emotional and physical sense. If you decide it does, then I insist you have the mortgage paid off before you retire. Sending in bigger payments now will speed up your repayment schedule. (Ask your loan servicer for a new “amortization schedule” based on your extra monthly payment. I think you will find it great motivation to see how much faster you can be out of debt.


4. Buy a long-term care insurance policy. If you are worried your retirement income and savings might not be enough to pay for the quality care an older you might need, I recommend considering purchasing a long-term care insurance policy.


5. Save more in retirement accountsand make Roth accounts a priority. If you have a workplace account, such as a 401(k) or 403(b) my guess is that you have been saving in a traditional account. Nothing wrong with that, but you may not even be aware that many workplace retirement plans now offer Roth accounts. I think switching your new contributions to the Roth, if available, can be a smart move. With a Roth 401(k), your contribution will come from pay that you have already paid tax on. But in retirement, when you make withdrawals, every dollar will be tax free. I think having some money that will be tax free when you use it will be something you appreciate in retirement. Retirees often overlook their tax bill. It’s important to keep in mind that every dollar you save in traditional accounts gives you an immediate tax break (you contribute pre-tax dollars) but in retirement every dollar you withdraw will be taxed as ordinary income.

If you don’t have a Roth 401(k) option, that’s more than okay. Keep contributing to your workplace plan up to the point that you get the maximum matching contribution from your employer. And then save more for retirement in a Roth IRA. If you are single and your income is below $124,000 this year, anyone at least 50 years old can contribute up to $7,000 in a Roth IRA. If you are married and file a joint tax return you can each contribute up to $7,000 if your joint income is less than $196,000.

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