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Debts are to be settled in order to retire smiling

MAXWELL Phiri.

Analysis: MAXWELL PHIRI
THE rule of the thumb is that an employee who is about to retire is supposed to strategise in order to pay debts 10 years before retirement.During this period an employee should not borrow or increase his or her debt, but to the contrary what we have observed now is that employees are retiring with huge debts.
This often results in people failing to be called successful retirees but retired debtors. As a potential retiree who is between 45 to 55 years of age, you should make strides to ensure that all the debts are paid before retiring.
Money will never be enough and accumulation of debts into retirement might ignite chronic diseases such as hypertension, high blood pressures, depression, etc.
Settling debts before retirement makes one to sleep like a baby, while carrying forward debts into retirement brings uncertainty to many potential retirees.
In most cases retirees find themselves working more years than they wanted and against their ability in order to find money to settle debts. In fact, you will find some 70-year-old people still working. The reasons you will get are that they had retired in their first job with debts and they want to make amends.
The question then is: when are young ones going to take over the jobs so that employment for the millennial is created? Because of this situation the country will be producing retirees who are retiring with debts.
In Africa retirement has always been perceived as the phase in which poverty will start looming in families and it is always a difficult period.
The word retirement among some employees invokes fear because their future appears bleak basically due to lack of poor planning whilst in employment. This is not supposed to be the case.
Retirement should be considered as a second phase of life where one has attained financial freedom to enable one to retire smiling.
Furthermore, retirees should use their retirement phase to offer free counselling services to the millennial working force in order to bring business continuity in terms of technical know-how.
This can only be attained if the potential retirees become aggressive with debts repayment while in employment so that 10 years before retirement the debts are reduced.
The most common debts people accrue nowadays are kaloba (soft loans), micro-finance loans, car loans, education loans and other debts called consumer debts.
If possible, pay off your mortgage and do not accrue new debts before or during retirement without having a plan to repay them.
Track your spending and pay your bills on time. Talk to creditors early. If you think you may fall behind, the principle in debt management is that you talk to the person you are owing well in advance before the due date that you are unable to meet the obligation due to unforeseen circumstances.
There is a probability that the person or institution you are owing will take into account your mitigation factors for not paying the debt on time. The most annoying thing common with some people is that they do not answer phone calls, they play hard to find.
Before retirement it is advisable to keep at least three months of emergency funds in untouched savings accounts to cover unplanned events.
While you are still in employment it is important also to handle your debt with a steady income stream. You may have to budget and make payments on a regular basis and, better still, double the repayment of the monthly instalment if you can so that you pay off the interest quickly to avoid incurring additional interest costs.
The dangers of carrying forward debts into retirement are:
 If your retirement savings are used to service debt, you are basically borrowing from your future self who may need that income down the road.
 Your debt can decrease your accumulated financial assets and savings, lessening potential earnings from these assets.
 Your retirement lifestyle is more restricted with debt since you will have less disposable income available for your retirement pursuits.
 Debt can cause physical symptoms of stress, impacting your health and lessening your sense of well-being, increasing costs of medical care and leading to despair.
 Without significant assets that generate good earnings, you may have to return to the workforce. Therefore it is against this background that it is easy to see why you might want to pay down debts before you retire
Before retirement you should start engaging gears and view yourself in a debt reduction mode. In fact, consider the 10 years before retirement as a “debt reduction decade”. Intentionally eliminate your overall debt by redirecting your spending and increasing your debt repayments.
 If possible, pay off your mortgage by retirement. Make extra monthly payments toward the principal balance to reduce your mortgage interest and gain more equity.
However, if you have other high-interest debt, you may want to address that first before paying down your mortgage.
 Suspend or reduce your retirement contributions. Yes, this is in direct contrast to most of what you have read. But if your debt costs more than what you earn on your investments, it makes sense to redirect some or all money available to you to pay off loans.
Remember, my passion is not to see you carrying debt into retirement but retire as a smiling retiree.
The author is director-human resources and administration at Rural Electrification Authority.

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