The Complete Guide To Retirement Planning For 40-Somethings: Mortgages and Debt
If the size of your family has been reduced due to your children leaving the home to live on their own, your relationship status changed or your elderly parents relocated, you may not need as much space as you did while they were living with you. If such is the case, downsizing to a smaller home could mean lowering any mortgage payments if you purchase a cheaper house, and reducing the amounts that you pay for utilities.
On the other hand, downsizing may not be practical if there is a chance that your children may move back into your home. According to the Bureau of Labor Statistics, "…young jobseekers are among the hardest hit by the recession, with 18 to 24-year-olds having the highest unemployment rates since the 1950s." They go on to say that "As apartment rental costs increase and jobs remain scarce, many young people have been forced to move back to (or remain at) their parents' houses an important way in which the family unit insures against labor market shocks." These children who move home are referred to as boomerang kids.
Many retirement planning goals and objectives include projections for reduced expenses when adult children move out of the home of their parents. In many cases, the projected increase in disposable income is directed towards nest eggs. However, if the children are unable to find jobs or are otherwise unable to afford to live on their own, those projections may need to be changed, which could adversely impact your projected retirement date.
Outstanding debt will negatively impact the amount that you can add to your retirement nest. The extent of that impact depends on factors such as the amount of debt, your ability to make repayments and the interest rates applied to each account. The following are some tips that you can use to help manage your outstanding debts:
- Try to pay off high interest accounts first. Allocating extra payments to these accounts can help to accomplish that goal.
- If you have accounts with small balances, it may make better financial sense to pay of those accounts first. This can help to reduce the monthly payments you are required to make, and allow you to determine whether it makes good financial sense to redirect the amounts that you used to allocate to those accounts to accounts with larger balances.
- While it is usually a good idea to add as much as you can comfortably afford to your retirement nest egg, it sometimes make better financial sense to allocate some of those amounts towards paying off high interest debts. Work with your financial advisor to compare the amount of interest you would pay versus the amount you could earn on your savings, so that you can make an educated decision on where to allocate your disposable income.
- Ensure that repayments are made on time, as failing to do so could adversely affect your credit scores and, in some cases, increase the interest rate on your account in addition to charges for late payments.
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