Preparing for Retirement

Retirement. This word evokes very different imagery to different people. It can mean a welcome end to the daily nine-to-five grind and a chance for personal freedom, time with family, and time on the golf course; it might present the opportunity for those not wishing to “slow down” to create a business of their own or devote their time to helping others; or it could become a time of limited finances and a frugal lifestyle.

Retirement income consists of three parts: investments and savings, pensions, and social security. Another invaluable asset in your retirement arsenal is owning your home free and clear. It’s obvious that the earlier you start a financial plan with retirement in mind, the better. It’s never too late to contribute to your nest egg, so don’t be discouraged – every dollar you save or invest will help you later. Here are some basic elements to consider when preparing for retirement.

Pay off high interest debt

The first step in any long term financial plan is to pay off your debt as soon as possible. It won’t do much good to put money into savings or investment plans if your cash is going out the window on high interest credit card debt or installment loans. Pay off these balances as quickly as you can so that all the money that’s currently paying interest can be redirected into retirement funds.

Retirement funds – 401(k) and IRA

These programs are indispensable tools in preparing for retirement. You’ll be investing in these accounts over many years and, depending on what age you start contributing, they can provide much needed income when you stop working. If the company you work for offers a 401(k) benefit, be sure to enroll – especially if they offer matching funds (which is like receiving free money to invest). Talk to your human resources representative to see if the company you work for offers a 401(k) plan or check with an investment advisor to look into setting up an IRA.

Buy a home for a secure retirement

Owning your home, free from mortgage payments, is a formidable weapon in the retirement income battle. Home ownership not only provides substantial tax benefits and frees you from ever-increasing rents for apartments or houses, but the value of every dollar you put into mortgage payments or home improvement strengthens your financial position. Home ownership also allows you to obtain a reverse mortgage that can be a tremendous financial help to those living on retirement income.

Reverse mortgages

If you own your home, you may obtain a reverse mortgage loan which allows you to receive cash that doesn’t have to be repaid until you sell your home, permanently move out of your home, or pass away. Generally, you must be at least 62 years old and own your home to qualify. Options to receive cash through a reverse mortgage include monthly payments, a lump sum, a credit line to use at need, or a combination of these methods that works best for you.