While many of America’s 60-something citizens have worked to save more and put off drawing on their Social Security until they’re 70, they are still making mistakes when it comes to retirement planning and preparation, according to CNBC’s Suze Orman.
The big mistake many are making is heading into retirement while still in debt, she says, citing a TransUnion report that found that nearly one in three Americans 60 years old or older has an average debt of more than $60,000. That's a sharp contrast from the 22 percent of that population that had a debt of $40,000 in 2005.
Orman stresses the importance of paying off all debts for a more financially secure retirement. Doing so will lower bills – a critical fact when living on a fixed income – with the added benefit of reducing stress and the emotional burden that comes with having debt.
To get out of debt before retirement, Orman recommends separating needs from wants in the budget. By doing so, seniors who are still working are likely to find at least $250 a month that they can put toward reducing their debt.
For those who intend to live in their current homes once they retire, Orman suggests working toward paying off their mortgages before they retire. If they are contributing more to their 401(k) than what is necessary to earn the maximum matching contribution, they should scale back their contributions and put that extra money toward their mortgages.
But only those individuals know whether they can honestly afford to stay in their current homes once they retire. They may want to stay, but they should be realistic: even if they are mortgage-free, they will still need to pay insurance, property taxes and maintenance on that home, Orman says. If expenses are too much once they’re retired, they should start thinking about where and when they will downsize – whether to a smaller home in their current neighborhood, or a different state where they can live easily by living debt-free, she notes.
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