The saying goes, “Debt is the slavery of the free.” as put by Publilius Syrus. Debt is the last thing you would want to accompany you to your retirement. Debt has proven to be the most detrimental aspect of many retirees’ lives. It has caused retirees to lose their homes, cars and even businesses which is truly a heartbreaking experience. We cannot fully discuss investing for your retirement without confronting the elephant in the room, debt.
This is not to say that you ought to be debt-free during retirement, even though it would be the most ideal situation, but it is to emphasize that your debt must be managed to ensure a smooth landing into your years of rest. It is imperative that one balances their income and debt by creating a realistic repayment amount and timelines. This should be done while a solid investment plan is being adhered to.
At the Retirement Planning Seminar, Mr. Lipunga emphasized that debt is largely unavoidable; as a matter of fact, most financial goals have been efficiently attained through some form of debt – be it student loans, car loans, and mortgages. Most debt is managed through repayment (servicing) and that is often the difficult part if not well planned. In our economy, the most common debts are car loans, business loans, village bank loans, loan sharks ‘katapila’ (which you must avoid like the plague) and mortgage loans.
Before taking a loan, one must carefully do an assessment of the costs and benefits. Ideally loans should only be taken when one wants to buy an asset or invest either in themselves through education or in a business. Taking a loan to finance every day expenses should be the last resort since there is usually no long-term benefit to such a loan. Loans taken to finance certain lifestyles could be an indication that one is living above their means. The most important factors to consider before taking on debt are the associated costs like interest charges and the required repayments.
With these financial commitments in mind, the Ndalama’s may wish to obtain a loan with low repayment amounts. This can be attained by opting for a longer repayment period to lessen the financial burden. The main issue however to the Ndalamas is what is the purpose of the loan? Is it for investment or consumption?
The advisor at NICO Asset Managers will suggest a debt repayment calendar that does not cripple the Ndalamas’ retirement plan, monthly expenses, and investments.
In an economy with a double-digit inflation, soaring fuel prices and forex shortage; the Ndalamas were advised to reassess their standards of living by evaluating their finances and how they may be affected by these economic factors. This may include scaling down on their expenses or even reducing high priced debt. This will ensure that they are maintaining a workable budget, investing, and paying off debt within their means. It would be set in a way that they balance debt repayment and stick to their investment plan as the Ndalamas approach their retirement.
The takeaway point is that mismanaged debt may easily become a thorn in your side. A wise philosopher likened debt to a household dog, if the owner of the house feeds the dog everyday as required, that dog will never bite him. That’s the same as honoring your debt obligations on time and with the agreed amounts. Debt can only be menacing to our finances if it is not well matched to our levels of income and if it is not correctly serviced.
As far as the Ndalamas go, the important thing is for them to prioritize their finances in the years leading up to retirement to help them make the most of the money they have. That means paying off expensive debts and the debts that have the potential to derail their golden years while continuing to set money aside in their retirement account.
Do not end this article worried, debt may be unavoidable in some instances, but it is not impossible to manage – you just need the right plan for it.
Next week we look into how current medical expenses may differ to those incurred during retirement and how best to prepare.
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