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4 Age-Related Money Challenges and How to Tackle Them


Take these steps now to be set up for a well-funded retirement.

On the surface, the basics of financial security look simple: Save more than you spend, live within your means, eliminate debt, and invest in your future as early and consistently as possible. But, as the results from a recent Gallup poll on age-related money concerns suggest, the financial facts of life aren't quite so linear. Although your biggest money challenges change with age, the financial woes of your 20s and 30s can hinder your financial progress for decades if they are left unaddressed.
Based on responses from the poll's participants, here are some top money challenges that various stages of life present, as well as tips on how to ensure that your major financial concerns of the present don't follow you into the future.
Pay Off College Debt

Gallup poll respondents in both the 18-29 and 30-49 age brackets said college expenses/loans top their financial concerns, and understandably so: The average student-loan burden is estimated at more than $30,000 for today's college grad. But the financial burden of student loans extends well beyond owing money -- if your debt is mismanaged, it can also wreak havoc on your financial future. The nonprofit group American Student Assistance (ASA) estimates that only about 40% of borrowers eligible for repayment are making on-time payments; the remaining 60% may be seriously past due at least 90 days, often due to financial distress. When you miss any student loan payment, you'll likely face additional late fees and, possibly, an increased loan interest rate, making an already sizable heap of debt even more costly. Further, when federal student loans are past due for more than 90 days and when private student loans are past due for more than 30 or 45 days, they'll likely be reported to credit bureaus and reflected on your credit history. Once that happens, it's harder to secure competitive financing rates for credit cards or auto and mortgage loans.

To tackle student loan debt, Betsy Mayotte, director of regulatory compliance for the ASA (which is also the parent organization of the student loan advocacy group SALT), advises taking stock of what you owe, and to whom, so you can formulate a strategy for repayment and research opportunities for repayment leniency. In addition to income-based payment plans for federal student loans, Mayotte says there are many loan repayment and forgiveness options available to a range of professionals, including teachers, attorneys, and those who work for nonprofits and in the health-care field. If you have private student loans, consolidation may help you secure a lower fixed-interest rate. Though putting whatever you can afford toward the debt will accelerate the payoff process, Mayotte recommends earmarking at least 8% of your income for eliminating student debt.

Focus on Improving Cash Flow

Poll respondents in both the 18-29 and 30-49 age brackets cited a lack of money and/or low wages as their second-greatest financial concern.

Despite your income, you can formulate a plan to improve cash flow by taking on a second job or "moonlighting gig," minimizing your costs of living, and (perhaps most importantly) paying off costly debts. Most advisors suggest paying down debt before turning to investing as a way to manage one's money -- the reason why is pretty self-evident. "After reviewing some client's budgets, I'm always amazed to see how much of their income goes to pay a debt with an APR of 18% or above, when the [stock] market is only yielding around 9% on average," says financial advisor Raul Jacobs of Waddell & Reed.

Regardless of how limited your income may feel, certified financial planner James Daniel at The Advisory Firm says that the first step to improve cash flow is prioritization. Craft a budget for your monthly committed expenses (such as loans and debt, rent, food, transportation), realizing that the more you're willing to "downsize" your lifestyle, the more discretionary income you'll have.

Out of that discretionary amount, dedicate a dollar figure that you'll devote to savings each month until you've accrued at least three to six months' worth of living expenses (Jacobs recommends striving to save 15% of your annual income, if possible). "My general rule is to only pay extra on debts once you have a decent rainy-day fund built up," says Daniel.

Contrary as it may sound for someone with cash flow angst, Terrance P. McGuire, partner and portfolio Manager at Ridgewood Investments LLC, says that once you do eliminate debt and build substantial savings, investing deserves a place on your financial radar. "There are always seemingly credible reasons not to invest, but those who can put aside something to invest each month, even if [it's] a very small [amount], can benefit significantly from the lifelong power of compounding. It is amazing how even small but regular contributions add up over time."
Be Proactive About Health Care

It's no wonder that health care was ranked as the third most pressing financial worry among respondents ages 30-49, and the primary concern for those ages 50+. After all, CNBC reports that medical bills are the primary reason Americans file bankruptcy. Though Daniel admits that insurance coverage through "Obamacare" may not be cheap, it's accessible to everyone, and health insurance costs need to be part of committed budgetary expenses. If the costs of monthly health-care premiums are excessive beyond reach, he advises considering high deductible/health savings account-type plans. Though you'll need to have a few thousand dollars set aside to satisfy the required out-of-pocket contribution that such plans make the participant pay, the monthly premiums are fairly low. Additionally, you can open an HSA and put pretax money into it each year. By the time you're 50 years old, you should secure long-term-care insurance, according to Daniel. If you have a medical emergency before the coverage is in place, you may not be able to secure it in the future.

Strategize Against Inflation

Daniel says inflation is "the silent killer" every retiree faces. Indeed, that (and cost of living) was ranked as the third-greatest financial concern for respondents ages 65+. He recommends some degree of asset allocation such as stocks, commodities, and real assets -- all of which typically do well at combating inflation. Additionally, the lifestyle choices you make in the decades leading up to retirement have a bearing on how daunting costs of living become post-retirement: The more you can eliminate debt and (ideally) mortgage obligations before retirement, the more you can manage such financial strains.
Twitter: @WellnessOnLess
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