Retirement is a phase of life that should be enjoyed as a reward for all the hard work and sacrifices of a lifetime. Unfortunately, very few people actually plan ahead for this inevitable phase and end up working even harder to pay off debts that have been accumulated due to bad planning and financial management.
Retirement planning includes identifying sources of income, estimating expenses, implementing a savings programme, managing assets and risks. Future cash flows are estimated to determine if the retirement income goal will be achieved.
Financial freedom is probably the ultimate goal for retirement. That’s when your income from your investments can pay off your routine expenses. The important point to remember is that these expenses should not include paying off debts and other liabilities accumulated over the years.
It’s quite normal for anyone to take some calculated risks on loans, mortgages and other borrowings to support the growing financial demands in the early stages of life. However, the target should be to settle these debts by the time you reach your retirement age.
Here are a few debts that one must look out for…
Owning a home is one of the most important goals for most people in the early stage of their career. Unless you’re lucky enough to inherit a property, a mortgage is a convenient payment method which you can use to finance your own home. What’s important is to plan ahead and consider paying of your mortgage and get the biggest lump sum liabilities off your books as you approach your retirement. As you progress through life, it could be an even better option to reschedule your mortgage payment plan towards an early settlement.
Vehicle loans can become an unwanted liability even at retirement. You may be tempted to want that dream car near the end of your career as a reward for your sacrifices in previous years. However, be mindful that a luxury vehicle may also create a financial burden if you extend it over a longer period of repayment and increase your expenses due to increased running costs. For those who have enjoyed a company vehicle, having to finance your own vehicle closer to retirement can cause an unexpected burden on your budget.