At this phase of your life, you don’t want financial mistakes to derail your retirement game plan. — Photo by Peter Crowther/Ikon Images/Corbis
En español | If you’ve been procrastinating on money matters, now is the take-control moment for you and your finances. Below are five smart financial moves to help keep your next 50 years financially sound.
1. Speed up paying down debt.
You don’t want to be dealing with mounds of debt as you work those last few years before retiring. Calculate your current debt load and start paying off larger debts as soon as you can. This includes any car loans, mortgages, large credit card balances and personal loans that you’ve been carrying around for a while.
Most retirees who own their homes free and clear will tell you that living without a mortgage is financially liberating.
The issue of the tax benefits associated with a mortgage usually comes up when people are faced with the decision of paying that loan off ahead of schedule. “I've always said not to let the tax tail wag the dog,” says Aric Jacobson, a certified financial planner in the San Diego, Calif., area. “There certainly can be a big incentive to keep that nice mortgage interest deduction going. But we are talking about debt. The higher the interest rate, the stronger the argument for paying the debt off sooner.”
Jacobson says that if you can enter retirement without a big mortgage payment, you can most likely live on a lot less. If you can’t eliminate your mortgage altogether, consider slashing your housing costs by refinancing your home loan at a lower interest rate. If you do choose to refinance, “You don't want to refinance into a term longer than your current mortgage,” Jacobson says.
2. Look at your life insurance.
If you don’t have life insurance, or think you may be underinsured, now is a good time to consider your and your family’s life insurance needs. The American Council of Life Insurers recommends having life insurance coverage of seven to 10 times your salary. So if you’re earning $50,000 annually, you’d want a policy that would pay your beneficiaries between $350,000 and $500,000.
Again, this is a broad rule of thumb and life insurance experts caution that your own individual needs may vary greatly based on such factors as:
- the amount of debt you would want paid off.
- how much money (if any) you’d want to leave your spouse, children or relatives.
- the number of charitable contributions you’d like to make upon your death.
“The need for life insurance doesn’t end when someone hits a magic age,” says Dave Simbro, senior vice president at Northwestern Mutual Life Insurance. “People often find when they reach their 50s, right when their term insurance might be expiring, that their life insurance needs actually increase.”
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