Financial Focus Take Steps Now to Avoid Heavy Debt Load in Retirement

During your working years, you might, on occasion, accumulate more debt than you’d like, but you can usually deal with it. After all, you’re still working, you’ll probably make more money as time goes on, and you’ll have a chance to tackle your debt. But once you retire, the last thing you want to see is a heavy debt load. And that’s why you want to take action well before you retire.

Unfortunately, for many seniors right now, debt is a big problem. How big? Consider this: Seniors filing for bankruptcy carry twice as much credit card debt as filers in their forties, according to the American Bankruptcy Institute. And before they reach bankruptcy, more and more seniors are visiting credit counselors. Money Management International, a network of counseling agencies, reports that its 75-and-over client base rose 28 percent in 2002 over 2001.

What’s behind these daunting figures? Two of the chief culprits are the long bear market - which reduced seniors’ retirement savings - and rising medical costs, particularly the escalating prices of prescription drugs.

Will conditions be different when you’re retired? No one can predict the future, of course, but one thing is certain: The more you do now to prepare yourself financially for retirement, the less you’ll have to worry about debt when you get there.

So, what steps should you take? Here are a few to consider:

* Put a “price tag’’ on your retirement lifestyle - What do you plan on doing during retirement? Will you travel the world? Open a small business? Play golf and spend time with your family? Once you’ve articulated a retirement lifestyle, you can begin to estimate how much it will cost. And by knowing about how much you’ll need when you retire, you can start making plans so that you won’t get caught short.

* Get the most out of your tax-advantaged retirement plans - To build the resources you need when you retire, you’ll want to take full advantage of your tax-favored retirement plans, such as your IRA and 401(k). Contribute as much as you can afford to these plans - and keep in mind that you need your money to grow. Consequently, you’ll want to have some exposure to stocks. While it’s true that stock prices will always fluctuate, it’s also a fact that, over the long term, stocks are the only asset class to significantly outpace inflation. As you get nearer to retirement, you may want to shift some - but certainly not all - of your investment dollars into income-producing vehicles.

* Avoid overusing credit cards - Sometimes, you may need to use credit cards because you have no alternative. However, in many instances, paying with a credit card is just a habit - and it can be a hard one to break. So, if you don’t want to use credit cards extensively when you’re retired, don’t get too comfortable with them now.

* Establish an “emergency fund’’ - To avoid tapping into your investments or relying on credit cards, establish an emergency fund containing between six to 12 months’ worth of living expenses. Keep the money in a liquid account, such as a money market account. And when you retire, you may want to build an even bigger cash cushion.

By following these suggestions, you can reduce the possibility of descending into debt during your retirement years. And that’s a tumble you never want to take.

This article was submitted by the financial representatives of Edward Jones in Hagerstown: Greg Garner, 301-733-9465; Dave Walker, 301-766-7300; Joan Bowers, 240-420-8514; and John R. Pullaro, 301-824-7726.