I’m trying to get outside advice on how to retire in the next 5-7 years. I may have to work until I’m 59 1/2 to start using pension funds.
We’ve got about $1.4 million in 401(k) and Roth accounts, $30,000 in stocks, a rental house that we owe that’s $245,000 that’s making $1,700 a month, and ourselves self-paid, a short-term rent that we owe at $158,000 and is bringing in approximately $48,000/year (net between $10,000 and $15,000 depending on effort). We own our own home with no mortgage and no car payments.
We currently have two children in college and we pay for their tuition.
The albatross around our necks is $150,000 in credit card and unsecured loan debt. The world became expensive and our spending spiraled out of control. We have most of them at low interest rates, but it’s still an overwhelming amount to try and knock off, paying $2,000 to $3,000 a month for it. We make between $225,000 and $250,000 a year together, and the range depends on my commissions at work.
Our plan is to use every bonus from work and short-term rental profits to pay down debt. That could be around $20,000/year. Also use Mint to budget and set goals to pay everything off using the snowball approach.
When we go on vacation, we save the money in cash and then use that money to pay for the expenses right away.
I worry if I’ll have enough when retirement age comes (we’re 52 and 51 now). My wife says I push myself too hard for money, but when we stop working we don’t plan on doing part-time jobs. We really want to be retired.
See: I’ll be 60 with $95,000 in cash and no debt – I think I can retire, but financial seminars say otherwise.
Dear Reader,
Life will throw you off course sometimes, and as you know, those detours can get pretty expensive.
It’s wonderful to have saved so much for retirement and also have additional sources of income. Debt, as you also know, is a problem.
Retiring in debt isn’t a bad thing in and of itself — depending on what kind of debt you’re taking with you into retirement, that is. For example, a decent mortgage is usually not a problem if future retirees can take it and have a payment schedule, but credit card debt should often be avoided as much as possible. Given how much you and your spouse make each year, regardless of bonus or short-term rental gains, your primary focus should be to completely eliminate that debt before you retire.
Do not miss: Should You Pay Off Your Debt Before Retirement? Here’s what you need to know
First, look at what your current spending is and see if you have any extra money left over. If not, why not? If it’s not necessary, review your spending and see if you can cut back.
As awkward as this suggestion may be (and I’m sorry in advance), you might also want to hold out on your next vacation…or take a cheaper one for now. Saving money for the vacation in cash and then paying it off right away is a fantastic strategy, but if you reduced that expense once or twice, you could dump that money on your debt and see the balance go down faster.
That’s not to say you should deprive yourself of all your joys or that you shouldn’t take a vacation for the next 5 to 7 years until you retire, but you might find a trip that you can, or are, taking closer to home a stay. Maybe there is a neighboring town that you have never explored before and you can take a day trip there. Or treat yourself to some dinners, walks on the beach or on a hiking trail and so on.
If you’re conscientious about paying off your debt, you might want to shift some of it onto an interest-free credit card. There are some that you can find with long promotional periods e.g. B. 18 or so months. However, there is a caveat to this plan – you must be able to pay it back in the time frame they offer the zero interest rates or you will pay handsome interest. Consider calculating how much you can definitely pay per month and multiply that by the number of months you’ve had the zero interest promotion. Then shift that portion of your debt to the interest-free credit card and pay it off every month.
Here are a few more Federal Trade Commission suggestions for getting out of debt on your own or with the help of a credit counselor.
Mint is a great tool, and budgeting is even better. Kudos to you and your spouse for managing your finances and focusing on paying off your debt.
Those rents are a great source of income, but when you do the math of how much you’ll need when you retire, consider adding to your emergency savings accounts for all of your real estate. You never know, but you don’t want to get into a situation where you need to fix two or three roofs instead of just one for your primary residence. Also keep in mind that there may be moments of vacancies or problematic tenants. budget for it.
Check out the MarketWatch column “Retirement Hacks” for actionable advice for your own retirement savings journey
There’s no magic number for how much you need to save for retirement, but now that you’re within a decade of retiring, you can see a clearer picture of what your retirement might look like (and cost). Get all those numbers in order and make some financial plans so your retirement doesn’t get derailed by the unexpected. Use some rates of return and inflation to get an idea of how these will affect your spending, savings, and taxes in retirement. Think about how much you want to withdraw from these accounts and how that percentage will affect your balance at the end of the year (especially during times of market volatility or downturns).
Just to be sure: You’ve already saved a lot – not everyone has that much when they retire, or even half – so don’t forget how far you’ve come.
I may be biased as a retirement reporter, but I don’t think you can go wrong if you’re worried about your retirement finances. Of course, you shouldn’t be so stressed out that you can’t eat or sleep, but if you’re just trying to crunch the numbers and make sure you and your family are comfortable in old age, it can’t hurt that. This is especially true if you intend to stop working completely and will not be able to earn any part-time or extra money when you retire. And if you still have debt, it will weigh you down – financially and emotionally.
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