An increasing number of Malaysian are facing an uphill battle just trying to save enough and earn enough on their savings to be able to retire on time. Carrying much higher debt burdens than previous generations, many pre-retirees have had to put their savings on hold to focus on debt reduction, which, for practical purposes is smart, but it is also the primary reason why some will need to delay retirement or drastically downsize their retirement lifestyle.
In retirement, cash is king, and every dollar of debt is a direct drain on your cash flow. But, it is never too late (nor too early) to take actions that will help you get back on track.
Should I try to pay off my mortgage before retirement?
The days of affordable housing property are nearly a thing of the past. As a result of the home refinancing hey-days of the last five to ten years, homeowners in their 50s and 60s are now carrying mortgage debt well past the age of 70.
Financial planners are challenged on whether it is a good idea to try to pay down your mortgage as soon as possible. There are those who say that it may be a disadvantage to lose the ability to conserve cash for investments. Invested prudently in the right instruments, your cash will make you more money than the interest payments you make on your housing loan. Your housing interest may be at about 6% per annum. If you can make more than that, you would be better off. However, you must be careful here, there is always risk and volatility in every investment.
I personally will not recommend repayment of the loan after retirement. How would you feel like if you will need to go back to work at the age of 65?
Do I save for retirement or pay down credit card debt?
Sadly, this is turning into a classic dilemma faced by a growing number of Malaysian. Unquestionably, you should try to pay off all high-interest debt before retirement.
With most investment earnings around 8%, the interest rate charged on credit card debt accumulating at 18%p.a will leave your cash flow bleeding. This is the time to get deadly serious about your credit card debt. Every ringgit you are paying towards debt needs to go towards your financial security.
If you can’t begin implementing your debt payoff plan soon enough, try this baby steps.
First, get on a budget- get a monthly target for debt payments (and make it a stretch goal) and then budget everything else around that repayment. Eliminate non-essential expenditures. Find ways to stretch your essential expenditures. Downsize your lifestyle. Your goal should be to pay off your debt completely within a year.
Pay off smaller balances first- it’s easier and more motivating to check off the smaller targets first. It will help you build momentum as you tackle the bigger ones.
Most importantly, STOP USING YOUR CREDIT CARD!
Should I just continue working, or should I try to earn an income in retirement?
Recent retirees and Baby Boomer pre-retirees have actually started to forge a new normal for retirement by preparing for a new career well before their retirement date. Some are branching out to start a business of their own or monetizing a hobby. Many boomers are already planning their new careers by hitting the books and learning new skills.
The prevailing attitude among a growing number of pre-retirees is that they aren’t going to limit themselves by trading a life of work for a life of leisure; rather they are going to take control and trade in work that they no longer want to do, for work they will really like to do. By taking control of their new working life, they are more likely to be able to find an enjoyable balance of work and lifestyle that will sustain them financially, mentally, and psychologically.