The question of how to invest in your pension while having large debts is becoming more and more common. According to a survey by Fidelity Investments, almost half of all “baby boomers” will retire with debt. This article gives you some tips on how to save even if your finances include some debt.
In recent years, both the size per debt and the number of debts per household have increased. Although it is more complicated to save pension when you have debts, it can help to know what needs you have for the pension, and to understand the differences between your different debts, as this can help to find the best possible plan for your pension savings.
For those who do not have any debt, it is quite simple in most cases – just saving / investing their money for the future. However, when you have debts, you have to think a step further. In cases where you have money to invest, you always had to ask the question “Should I invest this money or should I pay off some of my loans?”
It can be a balancing act and not always obvious which option is best. Of course, you always have to pay in the interest and amortization that your debt requires as a minimum, so that you do not end up at Kronofden, but you can also pay extra money to settle a debt faster. When you pay extra, the total interest cost decreases and you save money.
Thus, repaying / repaying a debt is a type of investment there as well. The question is only when it is best to pay off extra and when it is better to simply leave the loan and spend the money on other types of investments, such as stocks or funds.
What is your pension goal?
Without knowing what your goal with the pension is, it is difficult to decide whether you should pay off existing debts first or invest your capital in a pension plan. One of the biggest risks for investors is to run out of money during retirement. To minimize this risk, there are a number of factors to consider when drawing up your retirement plan.
It can be good to start with crucial issues such as life expectancy (how long will your pension capital last) and minimum cash withdrawals (how much you will need to spend each month during retirement) is a good start.
You also get to think about your standard of living and what you think it can do for an ordinary month, so that you have as good a control as possible about what you really need to do when you have finished work. The more thought and attention you put into your retirement needs, the better prepared you will be for the future. It is important to figure out these things well in advance if you are going to have any opportunity to influence them in a sensible way.
Debt or pension: What should you think about?
It is never a foolish idea to discuss their retirement goals with a financial advisor or personal banker, so that you can get a certain idea of how you should plan your retirement savings plan. However, there are also some fundamental considerations regarding the structure and cost of your debts that may affect your decision to pay them or invest in retirement. We will take a closer look at these below.
The cost of holding debt is important to consider when calculating your options for contributing to the pension. The important thing here is to have a low interest rate. If you have debts with high interest rates then the monthly cost will be high and it can be a good idea to pay off these as soon as possible.
If you have low-interest loans, such as mortgages, there is usually no greater danger of having these loans left. When choosing between paying off the shuttles and investing in the pension, you have to compare the return you think you can get, for example, shares, funds or savings account against the reduced interest expense if you pay off a debt. If the interest rate is low, even the profits will not be that great when you amortize and then it is usually better to spend the savings money on something else.
Contributing to retirement accounts with tax relief can allow you to benefit from tax-free growth on your investments. Because of this, it may be more advantageous to deposit money into a pension account than to pay off debt. To get an idea of what this would look like for you, you need to consider how much you are going to pay for the pension each year and compare it with your annual cost to maintain existing debts.
Paying off credit card debt and other debt with high interest rates should be given higher priority than, for example, loans on house / apartment. If your debts consist only of low-interest loans such as mortgages, your pension savings deposits can take priority over reducing your debts. The important thing, as I said here, is to compare the profit with a lower interest rate return that you can get if you invest your money elsewhere.
The closer you are to retirement age, the more important it is that you allocate money to your pension savings. The thing to keep in mind here is that pension savings are also about starting in good time. In order to get together for a good pension savings, you need to save for many years and have a savings that is constantly flowing.
If you find out when you are 50 that you need to save for the pension, you basically have only 15 years to save and you cannot spend as much money on pension savings each month. If you had instead started when you were 25 then you would have had an extra 25 years to spend money, which would also have made a huge difference.
If you put aside $ 1,000 a month, then 25 years of savings only in deposited money would be $ 300,000. If you also expect interest or return on all this money, it is more than $ 507,000 in total, if you manage to get an annual return of three percent. It is a lot of money that you miss if you do not start well in advance.
It is important to review their occupational pension as you can choose from two different types of savings to find the one that suits you best. Also keep in mind that the younger you are, and the higher your salary, the greater part of the pension will come from the occupational pension.
This is for those who have a job. If you run your own company then you may not have any occupational pension, or at least you will be able to control it yourself as the manager of your own company. Then it may be extra important to consider their private pension savings even more carefully. If you do not save privately then you may have to live really poor as a pensioner.
Remember to also review your premium pension choices. To this, 2.5 percent of your salary and other taxable benefits are allocated each year, and this is invested in funds of your choice. When you choose the funds for your premium pension yourself, it is a good opportunity to influence your future situation yourself.
Of course, you can not make active choices and it has been pretty good so far. Then the money ends up in predetermined funds, which have also proven to perform well. If you are not so invested in funds etc., it can often be better not to give up too much detail control here, but to have it managed automatically by the system.
In addition to this, it is also important to know that there is help to get, if you need it. Don’t be afraid to contact legitimate financial and debt advisers to make a plan before it’s too late.
Practical ways to contribute to debts and pensions
Bonus and unexpected cash flow: Next time you unexpectedly get some extra money in the account, split it in the middle. Use one half to pay off your debt and put the other half on your retirement savings. If you do not have any expensive debts, you can easily spend the entire deposit on savings.
If you have debts, you are probably well aware of your unnecessary expenses, but dig deeper than sp. Even $ 5 or 10 extra a month can help reduce debt or strengthen pension savings. Saving on your expenses to get more money over is a generally good idea for you who have debts that you want to pay off, but of course you can also start saving to be able to afford better savings.
Get an extra job
While it may not be as glamorous with an extra job at all times, it can quickly make a difference for your debts, giving you better opportunities to save more money for the future. Working extra much is a good way to get money, but you can also create extra money in the cashier in other ways if you now want to try to get rid of a debt that has a high interest rate, for example by selling old things that you do not use.
Contributing to your own pension savings when you have existing debts can be difficult at times, but it is possible. You often have to make balances and consider if it is best to save or amortize, etc. Pension savings are important, so you need to think about them well in advance. Keep fighting so you can retire and have a better life well into the fall of old age.