Military Officer - April 2007 - (Page 44) financialforum The Big D Don’t let debt derail your retirement plans. Phil Dyer, CFP, points out three common debt-accumulating culprits and offers a few suggestions for avoiding them. T Put Together Your Debt-Relief Plan ■ Need help getting out of credit card debt? Visit MOAA’s Debt Roll-Down Calculator to learn how: www.moaa.org/financial center/calculators/debt rolldown.html. he numbers are in, and they don’t look good for retirees and pre-retirees. Those who are already in or heading into their golden years are carrying far heavier consumer and mortgage debt loads than retirees of just a generation ago. According to a recent study by the National Consumer Law Center, the average credit card debt for those ages 65 to 69 is now nearly $6,000 — double what it was 10 years ago. Prime culprits of this debt load include rearing children later in life, frequent automobile and luxury purchases, and serial home refinancing. A study from the research firm Demos released in 2004 indicated that pre-retirees ages 55 to 64 were spending 31 percent of their gross income on debt in 2001, and that number has continued to climb. Carrying such a heavy debt load can endanger a secure retirement. Military retirees typically are better situated for retirement than their private-sector counterparts by virtue of having at least two sources of COLA-adjusted income (Social Security and military pensions), but they still should avoid racking up too much debt before retirement (or worse, in retirement). Here are some common pitfalls: Credit card debt. With average credit card rates in the U.S. currently hovering at about 16 percent, it would take you more than 30 years and nearly $11,000 in interest charges to pay off a $6,000 credit card debt if you only make the minimum monthly payment ($120 a month). The good news is that even a small additional payment of $25 a month can cut your repayment time down to about five years and save you more than $8,000 in interest payments. Buying new cars. Buying new cars and trading them in frequently (every two to three years) can be enormously expensive. Most cars lose 20 percent to 40 percent of their value in the first two years of ownership, so the combination of depreciation and auto loan interest can cost thousands of dollars on each transaction. For significant cost savings, buy a certified pre-owned car from a dealership and drive it for five to seven years. As a general rule, if you can’t afford the payments on a 36-month (or shorter) loan, you can’t afford the car. Frequent mortgage refinancing. Even though you might be able to make a strict dollars-and-cents argument for carrying mortgage debt into retirement, the peace of mind of being mortgage-free cannot be underestimated. Beware of “wealth-generation” programs that advocate pulling equity from your home every year and investing it in financial products. These schemes rely on ever-appreciating home prices, seriously overestimate the tax benefit of the mortgage interest deduction, and typically are loaded with commissions and fees. So if it sounds too good to be true, it probably is. MO — Former Army Capt. Phil Dyer, CFP®, is deputy director, Benefits Information and Financial Education. To find a financial planner near you, contact Garrett Planning Network at (866) MOAA-GPN (662-2476) or www.moaa .org/garrett, or visit www.moaa.org/financial center for other resources. PHOTO: SEAN SHANAHAN 44 MILITARY OFFICER APRIL 2007 http://www.moaa.org/financialcenter/calculators/debtrolldown.html http://www.moaa.org/garrett http://www.moaa.org/garrett http://www.moaa.org/financialcenter http://www.moaa.org/financialcenter
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