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Six Steps You Can Take to Financial Prosperity

Six Steps You Can Take to Financial Prosperity

USA Today

Avoid taking on too much debt

Americans are retiring with more debt than ever before. Among households 65 and older, the average load of credit card debt more than doubled from 1992 to 2004, to $4,907, according to Demos, a New York think tank.

The proportion of retirees with mortgage debt is also rising. Nearly one-third of families headed by people 65 to 74 had mortgages on their primary residences in 2004, up from 26% in 1998, according to the Federal Reserve.

If you accrue debt while you’re working, you can always put in extra hours or take a second job. But once you retire, your options shrink. For most retirees, car loans, credit card bills and other debt payments mean less money for health care and other essentials.

Suppose you’re retiring with $100,000 in savings and $10,000 in credit card debt with a 15% interest rate. You plan to withdraw 5% a year from your savings, which will provide $5,000 to supplement Social Security and other sources of income. But unless you pay off your credit card debt, your interest will come to $1,500 a year. That means you’ll end up using 30% of your annual withdrawal to pay interest on “something you consumed long ago,” says Dan Houston of Principal Financial.

Mortgage payments can also drain your savings, Houston says.

But Amy Noel, a financial planner in Boulder, Colo., notes that retirees who have lived in their homes for years may have small mortgage payments. For them, it probably wouldn’t be wise to withdraw savings — and trigger a tax bill — to pay off a mortgage.

By Sandra Block

Next: Working longer can pay dividends

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