She recommends opening an account as soon as possible and setting up an automatic contribution from your paycheck, no matter how small. “Even if you can only contribute 1% for now—that won’t get you to retirement, but it will get you closer than you are today,” Brewer explains. To make sure you continue increasing your contributions, she suggests setting a monthly, biannual or annual calendar reminder to up what you’re contributing by another percentage point … or two. (Sometimes, you can even automate this through your retirement plan.) “You don’t want to realize five years before you plan to retire that you’re behind on your goal,” she points out. “Putting away 10% now will be a lot less painful than putting away 50% later.”
3. Approaching Retirement With Outsized Home Costs
Entering retirement with a mortgage isn’t necessarily a bad thing. Entering retirement with a mortgage—or even a home equity loan—you can’t afford, however, is a potential disaster.
“I see people with too much in real estate debt, which is quite often a HELOC on top of a mortgage,” says Judy McNary, CFP® with Colorado-based McNary Financial Planning, referring to a home equity line of credit, which lets homeowners borrow against their home’s equity.
She points out that a certain amount of debt is manageable—even good—but massive debts such as HELOCs tend to make covering your retirement costs tricky, as retirees with this much debt need to set aside much more money than someone who has paid off their major loans to pay down their housing costs.
For that reason, McNary recommends prioritizing pre-retirement repayment of that debt. “If a client can pay off the home equity line, it generally will get them to a state of debt they can support with what they want to live on in retirement,” she says.
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Image courtesy of Goodluz