Updated: Oct 5, 2018
Retirement and growing old may be the furthest thing from your mind right now, but with the ever-changing circumstances of the American economy, it is definitely prudent to start preparing now. Our generation, on average, has more debt out of the gate than any other generation in American history between student loans, the expectation of car loans and mortgages, and credit card debt. This kind of indebtedness leaves our generation’s retirement plans uncertain at best, so what can we do to ensure that we are not left out in the cold once we have outlived our “usefulness?”
One answer, that may seem too obvious, is save. Start saving now while compounding interest is on your side. Getting even a few hundred dollars put away now and adding a just a few dollars to it per paycheck will net tens of thousands in compounding interest by the time you retire. Investing can fall under this category as well, but keep in mind that the more aggressive an investment strategy is, the more risk is usually associated with it. For instance, penny stocks, buying a cheap stock, gives the opportunity for massive returns if the small company grows, but lots of small companies go under and instead, you lose everything. Finding a balance of risk to growth that you are comfortable with is one of the first decisions you should make when investing. Keep an amount that you are comfortable with in a safe investment, like a savings account, and put an amount you are comfortable losing into more aggressive investments. If you put too much in aggressive investments and lose it, you may find yourself in a situation where you cannot put money toward paying off your student loans.
Paying off your debt should be a fairly urgent priority for anyone. The longer you hold on to those loans, the longer you have to pay interest on them. You should try to avoid dipping into your savings to repay them, because that will cripple the growth, but you should be making payments reliably - meaning on time and a little more than the minimum payment if possible. Avoiding more debt is also important because it will also have interest to pay. Developing good spending habits to avoid credit card debt and unnecessary loans can help with this. Once these habits become second nature, consolidating debt can be a good idea. Consolidating debt is basically taking out a low interest loan to pay off your high interest debt. Afterwards, you only have one payment and it is not gathering interest as quickly as before. In order to see a real benefit from this, you need to keep your payments the same as they were before. Low interest loans count on you paying more slowly and charge interest over time instead of charging high interest and expecting you to pay quickly, like a credit card does.
There is so much more to this topic than what can be covered in a short article, it is important to go out and do the research to find the best plan for your individual situation. The two main ways to ensure a comfortable retirement are still to start saving and pay off your debt. The differences are in the specific ways an individual chooses to do so. Fortunately, many student loans do not start charging interest until a few months after graduation so there is still time to work on a plan and put it into action.