Campbell Wealth Management - July 2018

Debt Can Ruin Your Retirement, But It Doesn’t Have To

reduced income. You should also never cash in 401(k) or other retirement accounts early to pay off your mortgage, because you’ll

When people approaching retirement are asked about their biggest fears, debt consistently ranks near the top of the list. That’s with good reason. According to finance company Comet, roughly 80 percent of American adults have some amount of debt. Many Americans will retire with a mortgage, car payment, or some other form of financial obligation. Obviously, retiring debt-free is the best outcome, but it’s simply not realistic for many people. That said, a little planning can go a long way toward making debt manageable after your career is over. Ideally, paying down debt should begin while retirement is still far off on the horizon. High-cost consumer loans, like those on credit cards, should be the debts you tackle first. A good rule of thumb is to start with the debt that has the highest interest rate. The longer that debt sits, the more you pay in interest. Many of these debts are not tax- deductible, so there’s no point in waiting for the optimal time to pay them off. As you get closer to retirement, you should take a look at your mortgage and be ready to do some math. Because mortgages are tax- deductible, you may be in for a significant rate decrease once you retire. While the best strategy for you may be different than your neighbor’s, there are a few principles that apply to all cases. You need to be sure that your payments during retirement will be manageable on your

incur serious fees for an early withdrawal. As you transition into

retirement, you should reevaluate your budget. The more expenses you can reduce, the longer your resources will last and the less stressful any outstanding debt will be. You should also set aside at least three months of emergency funds if possible, so that you won’t need to use credit if something unplanned happens. Retiring without any debt may not be an option for you, but that shouldn’t stop you from proactively planning to decrease debt before you stop working. Like the proverbial monster under the bed, debt is a lot less scary when you’re willing to stare it straight in the face.

Is the 'Gig Economy' the Future of Retirement?

money they earn from the side hustle goes into a savings or retirement account. Many younger people are saving as well, but at a lower rate. Of those between the ages of 25 and 35, only 42 percent are saving for retirement via a side hustle. Of course, a willingness to save money is to be lauded, though it may be rooted in concern for the future. About a third of those surveyed expressed worry that Social Security benefits would no longer exist by the time they reach retirement, and that a side hustle would be a necessary source of income. About 16 percent of respondents said they would keep their side hustle during retirement. For older Americans, taking advantage of the gig economy as they approach and enter retirement can be hugely beneficial, both financially and socially. Many people turn their hobby or passion into a source of supplemental income. Even better, you have more control over the hours you work and the amount of effort you want to put in day to day. This prevents you from burning out and keeps the passion for what you love alive. Call it a win-win for retirement.

More and more people are taking on a “side hustle” in order to save money for the future. Generally speaking, a side hustle is a

second, part-time job, worked in addition to a full-time job or on an independent basis. More so, side hustles are typically based on a person’s hobbies or passions. For instance, if you paint for fun and you sell your paintings, you have a side hustle. For many people, selling goods on eBay is a side hustle. Side hustles are part of the “gig economy” — a type of employment centered on temporary or smaller, more flexible jobs. These are jobs that include contract work, freelancing, and other types of self-employment. A recent survey from Betterment, an online financial services company, found that over 65 percent of people between the ages of 35 and 54 use their side hustle to actively save for retirement. For people over the age of 55, the number saving for retirement jumps up to 76 percent. All the

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