Many younger workers have the task of balancing debt reduction with retirement savings. Often the debt they have accrued is related to student loans and credit cards. Many of these workers believe they need to pay off their debt before they begin actively saving for retirement.
However, to be able to save a sufficient amount for their golden years, young workers are going to need to save while also paying off debt. Here are some ideas on how to do that:
- Focus on High Interest Debt
Getting out of high interest debt should be a priority. Credit cards are usually the main culprit with interest rates as high as 18 or even 25 percent. Once rid of high interest credit card debt, try to stay out of it. When these debts are out of the way, there will be more funds available to allocate to retirement savings.
- Be Smart with Loans
Often, loans are just a necessary evil in life. This is especially true when making large purchases, such as buying a new car. Try to find the best deal possible, with smaller payments. Sometimes this means buying a used car or a less expensive option. The larger the down payment, the smaller the monthly payments. With smaller payments, more money can be put toward retirement.
- Set Realistic Goals
Instead of having an illusion of spending very little in retirement, plan for spending more. The average annual spending for those age 65 and older is $40,938. Workers need to realize they will probably spend more and account for that in their savings.
This is especially true of spending money on healthcare. Many retirees do not account for medical needs when saving. One way to be cognizant of upcoming healthcare costs is to start a health savings account. These accounts help retirees cover the medical costs rather than dipping into their retirement savings.
Often, younger workers are only encouraged to take advantage of a 401(k) match plan through their company. While this is a great tool, opening a separate account in addition to a work-sponsored one can bump up their savings potential. Visit Mountain West IRA’s website to learn about their retirement plans and investment options.