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My husband and I are both 56 and want to retire as soon as possible. There are so many retirement calculators and each gives a different scenario, making things so confusing. We will need about 50% of current income for comfortable living. Do you recommend paying anything off before maxing out our savings? My thoughts are to keep the debts at low rates and pay off the boat we own. We can save $50,000 per year as our adjusted gross income will go under $150,000 for both of us.
The bottom line: It comes down to what makes you most comfortable. Having $400,000 in debt, especially when it’s spread among a home, credit cards, a boat and a car, may make you nervous later in life, so you might want to spend down some of it with your extra cash flow. Paying off debts with the highest rates first is always a great plan, as you already know. Because the boat has a higher interest rate, you’re right to want to go for that one first, but you may also want to try to dwindle down that credit-card debt, Allen said. “Otherwise, they should save more each month as long as the anticipated rate of return on the savings can be reasonably expected to exceed the rate on the debt,” she said.
She breaks down spending into 10 broad categories: home, transportation, personal care, food and dining out, entertainment and travel, health-related, dependent care, charity and gifts, savings, and miscellaneous. Make sure you’re accounting for all of those categories when you determine if a 50% replacement rate is good enough — workers who retire at 62 have a median replacement ratio of 55%, but that was prior to the pandemic.
Also, before you retire early, keep in mind the risks associated with retirement and address them before you exit the workforce, Tuz said. He calls them the “Five Primary Risks of Retirement:” longevity, timing and sequence of return, maintaining purchasing power, over- or under-spending and health-care expenses. “The hardest part is four out of the five one has no control over,” he said.
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