Green Retirement Blog

A study done in Britain by “Helped the Aged” and Barclays Bank, has discovered that many more people are entering retirement, with large amounts of debt.

“Half of households headed by someone in their 50s are still repaying a mortgage, as is one in eight over-60s.

The picture on personal loans is worse. Credit users in their late 50s and early 60s owe, on average, at least four times as much in unsecured credit as their counterparts did a decade ago, says the report.”

According to the report, high debt load, is forcing many people to delay their retirements.

Do Not Retire In Debt

Paying off your debts, especially credit card debt before you retire, is one of the best retirement investments you can make. There are two reasons why paying off credit card debt before you retire is the smart move, first you earn an equivalent high rate of return on your investment. And secondly, you can retire with substantially less savings, than if you carry the debt into retirement.

Let’s use an example to illustrate the point:

$30,000 Credit Card Debt
19% Average Interest Rate
$475 Monthly Payments

Every dollar extra you put, into paying down the principal on your debt, is the equivalent of earning a 19% rate of return on your investment. Unless your mutual funds are earning more than a 19% annual rate of return, you are better off paying down the debt, instead of placing your retirement savings in stocks or bonds.

To finance the $475 monthly payment in retirement, would require an investment of $120,000, four times the amount of the debt. You would need to save an additional $120,000, in retirement savings, just to keep paying your minimums. Obviously, it makes much more sense to pay off the $30,000 credit card debt, instead of having to save an additional $120,000.

This is the Retirement Blog. Visit the Green Retirement Planning Website to learn how you can save hundreds of thousands of dollars, retire years earlier, and help save the planet.