What Are Some Common Debts a Person May Have?
Kiplinger reports that people of all ages struggle with debt, with 21% of Americans saying they don’t see themselves ever getting out of debt. If you are like most people, you may have a variety of unsecured balances such as a store credit card or a medical bill. You may also have secured debts such as a mortgage or auto loan. In some cases, you may owe a priority debt such as federal income or business taxes. Other priority debts may include child support, alimony, or a judgment in a personal injury case. Perhaps you went through a mortgage refinance to take out some equity on your home to pay bills.
How to Manage Debt While Planning for Retirement
The type of debt that you have will determine how you create a financial plan heading into retirement. If you have equity in a home or car, you may be able to sell it and lock in your profit. That money can then be used to buy or rent something that you can afford for the next 20 to 30 years. Unsecured debts may be discharged in bankruptcy while tax debts can be resolved through negotiation.
According to TaxProEZ, it is important that you understand the difference between tax relief versus tax resolution. Tax relief means that some of the debt is being forgiven while tax resolution means that you have come to an agreement to pay the amount owed without future penalties.
Creating a Financial Plan Heading Into Retirement
Quest Education recommends that those with debt make a plan to minimize and eliminate debt as quickly as possible, then to begin contributing to an IRA or 401k. This is because you can reduce your taxable income while also benefiting from your retirement account growing tax-free. Your next priority should be to pay down credit cards or other debts with the highest interest rates first.
Ideally, you will have a life and health insurance policy in your name. This can help to pay for any long-term care needs or any other costs that may arise. With adequate insurance, you can keep more of your retirement savings and avoid having to go back to work in your 70s or 80s. The less debt that you have after retiring, the more that you can enjoy your newfound freedom.
We at the Retirement Planning Store believe in helping you plan for a secure and happy retirement. Everyone, no matter what your age is or what your debts are, needs a retirement plan. If you’re close to retirement age, you still have options, so don’t worry, just contact us!