Conventional wisdom says you have to make huge sacrifices now so you can have the comfortable retirement you want later.
That’s true to some degree, but if you think smarter now, you don’t have to sacrifice every last pleasure in your present life so you can live the one you want later on.
What kind of life is that anyway?
What do we mean by thinking smart now? Here are some of the most effective tips to implement in your life now to ensure you live life comfortably in the present and get the retirement you want in the future:
1. Refinance your home
The biggest asset most Americans purchase and hold is their home. On a $200,000 mortgage with an annual interest rate of 6%, you’ll end up paying $231,000 in interest if you have a 30-year mortgage. Today, we have almost historically low mortgage interest rates – getting a 4.0% interest rate is very possible. Over the same 30-year period, a 4.0% mortgage rate costs you $143,000 in interest. If you refinance, that’s nearly $88,000 saved right there.
2. Invest in index or target retirement funds
With some of that money saved, the next wisest move is to invest it in assets that will grow. If you’re scared of the stock market, you should be because even full-time pros experience big losses. But, if you invest the same amount each month over the entire time you work (40 years), you capture all the highs and lows of the market.
Invest in an index fund, which replicates the performance of the DOW Jones, or in a “target retirement” fund, which invests aggressively now and gets more conservative as you approach retirement age. Either way, if you invest consistently over time, you mitigate your risk and maximize your returns. If you invest $5,000 per year for 40 years, and that money grows an average of 6.0% per year, that’s about $789,000 when you’re ready to retire.
3. Pay down your mortgage early
Maybe the stock market is a little too scary for you. If it is, take a more conservative approach and pay down your mortgage early. Just make sure the holder of your loan accepts prepayment without penalties. You can save yourself from paying even more interest this way.
4. Don’t buy anything on a loan
The number one killer of the finances of many Americans is interest on credit cards and other debt, such as a vehicle. Paying a reasonable interest rate of around 6% on a vehicle won’t kill you, but try to avoid doing it if you can. Pay cash instead, and buy the car just slightly used to get the most value for your dollar.
5. Reduce medical debt
Medical debt is crushing a number of Americans these days. Remember, if your bills exceed 7.5% of your adjusted gross income, you can claim all of your medical costs as a tax deduction. Make sure to talk with your accountant about this. Alternatively, offer to pay the entire balance on the spot with cash or credit. Many times, you can cut your medical costs by 20% when making this offer.
Focus on the Big Things and Let the Little Stuff Go
There’s no guarantee that you will be able to retire with the amount of money you want, but if you follow these tips and focus on the big stuff, you’ll put yourself in the best position to have a comfortable retirement.