Retirement Planning Blog

In today’s economic down slum, it is important that you keep some funds to maintain a descent lifestyle. Well, now comes the important question: should you utilize the money or pay off the debts? You may be losing on vital funds and assets in the long run if you spend too much in paying the debts and do not invest. Proper debt management helps you to maintain a perfect balance between paying the debts and investments.

Proper debt management helps you to have an idea of the various cash flow conditions, the options of investments, the benefits and the risk factors and so on. If you thinking about investing some more funds, you need to have an idea of the tax cost of borrowing compared to the tax rates of investing returns. Your after tax returns can be more than the after-tax debt cost if you have a diversified portfolio.

Business persons may opt for investing the money in their business and not reduce the debts so much while retirees or older adults may pay off their debts first before opting for any type of investments.

To decide whether you need to invest first or pay off the debts, you need to take into account some vital factors such as your age, your source of earnings, the income, the rate of taxes applicable, the time limit of the debt and so on. If you do not want to take risks in the stock markets or investment channels, it is better that you pay your debts first.

Experts say that people who are still working should keep at least 6 months of cash in advance with them and should also try to have a debt-to-income ratio which should not exceed 25-33% in a month. Be it investing or paying off your debt, you should try to have this limit of money and the equation. Also take into account, the financial situation and the economic condition.

It may sound surprising but Social Security can provide you free loans. Under the present scenario, retirees can choose between various options like claiming the benefits at 62 and getting reduced returns or delaying claiming the benefits till 70 and enjoying full returns every month.

Now, in order to get higher lifetime benefits, you can use some unconventional strategies. One of them is known as the “Free Loan from Social Security” strategy. By applying this strategy, you can get some free loans from the social security accounts. For instance, if you claim Social Security at 62 years of age and reclaim the same at 70 years, you can receive a higher benefit. As you only need to pay back the principle loan amount, you can keep the interest and invest it in some other channel.

If you are of age 70 and adopt a Free Loan” strategy, you can first claim some benefits at 62 years of age and again reclaim it at 70 years. The interests that you receive provides you with the head-start’ on reaching the break-even age. In order to be break even, you need to live until you are entitled to the total benefits of social security.