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2 Things You Must Do Before You Retire – The Motley Fool

The shortage of old-age savings is rapidly becoming a crisis in this country. One in three Americans saved less than $ 5,000 on retirement, and one in five has no savings, according to a survey by Northwestern Mutual.

If you belong to this group, you may want to consider increasing your retirement credit, but there are a few other things that you really need to tilt first.

. 1 Create an Emergency Fund

Nothing can disappoint your finances like an emergency. If you have no savings, you may need to take out a loan or charge your credit card for expenses that you can not repay at the end of the month. Getting into that debt cycle can be difficult to get out of, and the money you could have saved would have to go towards interest on your debt.

  Woman holds envelope full of money.

Source: Getty Images.

You can avoid this by proactively saving for these unexpected events in an emergency fund. Open a separate account or keep the money in your existing savings account. Just make sure you immerse yourself in your emergency savings.

You should have living expenses for at least three months, but six months is even better. If you want, you can save at the same time for retirement and your emergency fund. But give your emergency fund the advantage. Once you reach your goal, you can put more money into retirement each month.

. 2 Debt High Interest Debt

There is a debate on whether it is best to pay off high interest debt before you save for retirement, or whether you should do both at the same time. It is not an easy decision. The longer you need to settle your credit card debt, the more you will pay with interest. This is a guaranteed loss. Depending on how much you owe and how much your credit card interest rate is, it can amount to thousands of dollars. However, if you delay retirement to reduce debt, you will miss months or even years when the money could have grown and when it's time to retire, a smaller nest egg will be available.

] Proper handling of this dilemma depends on your situation. If your employer offers a 401 (k) match, you should not skip it unless you can not afford to contribute to it. Add enough to use the free money and use the rest to repay the debt. Look for ways to reduce your debt, such as: For example, transferring a balance to a 0% annual interest or consolidating your debt with a personal loan. This can help you get your debt under control faster.

If your employer does not offer 401 (k) or does not match your contributions, it's a bit more difficult. If you have a small amount of high-yield debt, it may be better to spend all or part of your extra money for a month or two to turn it off. Then you can dedicate all the money to saving as soon as your debts are paid off.

However, if you have a lot of high-yield debt, consider repaying it while saving for retirement. You can evenly split your money down to two or one favor, whichever is more important to you.

You may need to make some lifestyle changes to free extra money, such as: If you have difficulty finding a suitable plan for you, you should consult a financial adviser who can advise you individually. You may be able to work out a plan you did not think of.

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