Planning for a Debt-Free Retirement

Everyone should work toward being debt-free by the time they retire. Freedom from all outstanding monthly payments (mortgages, car loans, or real credit card debt) will help you live comfortably in retirement and make it less likely that you will run out of money—even if you live longer than expected. Most retirees who are debt free can make it through unexpected financial challenges with their standard of living intact.

Good planning requires you to consider the possibility that your health may decline as you grow older. If your health is good, then your financial needs will be fewer. However, if you are one of the unlucky ones (which a large percentage of us will be), then your health costs can take over your budget.  Health insurance will cover most of the cost of an acute episode (such as a heart attack, fall, or stroke), but it will not cover much of the cost of debilitating diseases, such as Alzheimer’s or Parkinson’s, which require dependency on others for activities of daily living. Many are shocked by the high costs of long term care and fail to factor in the possibility of poor health. For these reasons, it is even more important to enter retirement debt-free.

Saving for retirement is even more difficult today.  Young people rarely think about their retirement needs when they are starting out and saving to buy a house or a new car or starting a family.  Often a few years later these young adults are required to care for a parent and enter into the “sandwich generation.” The sandwich generation consists of those who are raising their own children while simultaneously caring for their aging parents, who often lack sufficient funds to pay for the cost of their own long-term care. Those sandwiched in between these two generations often face difficult choices trying to support their loved ones. This can make saving for their own retirement challenging.

The youngest generation has the greatest financial challenge—they will live the longest and they are starting out in the most difficult economic times since the Great Depression.  The competition is keen for any job and most jobs pay low wages with few benefits if any.  It is highly unlikely this generation will enjoy Social Security benefits the way their parents have benefited and companies are no longer offering pension plans.  For those seniors who are financially secure and have paid off all of their debts, one great gift to your grandchildren is to help them save for retirement. Most parents are pulled in a different direction so this is where grandparents can really help. Instead of putting education accounts in place, we recommend helping grandchildren save for retirement instead, as there are many college opportunities today for those who are motivated. Younger generations may face difficulty saving for their retirement, but they cannot afford to ignore the obvious. Those starting out should put away at least 10% of their earnings every payday in order to have enough money for retirement.  Children are much more likely to outlive their savings than older generations, as the longevity tables expand with each new generation – those born today with good genes are predicted to live to the age of 121.

One way to help children save for retirement for the first 15-20 years of their life is to establish a life insurance policy that is structured for cash value build up and contribute $3,000 to $5,000 per year for 10 to 20 years. These policies act as tax sheltered investment vehicles that allow cash values to accumulate over time that can be used for retirement. When the grandchild begins working and earning income, grandparents can begin making gifts that the grandchild can contribute to a Roth IRA. The best time to contribute to a Roth IRA is when you are young and in a low tax bracket, but few can afford it with all the demands for their income. Helping them save for retirement is the best gift that a grandparent can give, as it will help grandchildren plan ahead and start saving now.

If you or your loved one needs assistance with planning for a debt-free retirement, or if you have questions about government assistance programs such as Medicaid or Veteran’s Benefits, consider W.G. Alexander & Associates – we offer a unique blend of asset protection, Elder Law and estate planning.  You can also attend our free seminars, learn more through our website at, or call us at (919) 256-7000.

Attorney Bill Alexander discusses these issues and more every Tuesday morning on W.G. Alexander & Associates’ radio program, “Asset Protection Today,” on TalkRadio 850 WPTK (AM). Be sure to listen tomorrow  from 9:00-10:00 AM.  To listen to last week’s show, please visit WPTF’s on demand show blog by clicking here.