How to Save for Retirement When Drowning in Debt

Retirement feels far away for millions of Americans bruised by the ongoing economic slowdown. A recent survey by the Consumer Federation of America finds just one in three American workers willing to bet that they’ll be able to retire by age 65. Over 30 percent believe that they’ll be working well past age 70.

These sorry statistics are the product of several disturbing developments. According to the U.S. Federal Reserve, the average household’s net worth has dropped by nearly 50 percent since the housing crisis began in earnest. Wage growth has stagnated as well. These days, the average American has less wealth than at any point in the past 20 years.

Even as household net worth has plummeted and wage growth has failed to keep pace with rising rates of inflation, consumer debt has remained stubbornly elevated. Since 2007, the average household’s debt burden has decreased by less than 1 percent.

Worse, any apparent decline in total household debt can be attributed to falling home values. As the average size of a new mortgage continues to shrink, the new homeowners who use them may appear to be wealthier.

This decline in mortgage debt is more than offset by a steady uptick in consumer debt. Unsecured debts like medical bills, personal lines of credit and high-interest credit cards represent a growing slice of the average consumer’s portfolio of debts.

All of these trends point to an unsettling new economic reality in which low wages and expensive debts feature prominently. If you’re wondering how to save for retirement while you’re drowning in debt, you’re not alone.

Your financial planner may have some answers. According to the Consumer Federation, just one in three Americans has a forward-looking retirement plan under active management. Most Americans simply entrust their surplus funds to savings accounts with microscopic effective interest rates. Financial experts agree that savings accounts are not suitable investment vehicles.

The Consumer Federation’s survey shows the benefits of careful financial planning. More than half of the consumers who actively manage their retirement portfolios express confidence in their abilities to make sound financial decisions.

Most “planners” also feel confident that they’ll be able to retire with sufficient funds to maintain their living standards. By comparison, most “non-planners” express doubts that their retirement plans are on track.

Before you can begin building a nest egg for your retirement, you may need to boost your bottom line with part-time or freelance work. If you’re drowning in debt and can’t possibly afford to make meaningful contributions to your savings or retirement accounts, some extra income may be just what you need.

If you already work 40 hours a week, consider picking up a low-impact extra job on the weekends or in the evenings. You could start a side business as a consultant in your current area of expertise or branch out and learn a new skill.

If you’re computer-savvy, you may even be able to make some money as an online freelancer. As the Internet continues to expand, demand for competent programmers, designers and content generators shows no sign of letting up.

You don’t have to be the only member of your household who takes on a part-time job. Encourage your teenage kids to enter the world of employment with a job at your local supermarket or warehouse store. They’ll learn the value of a dollar and may never have to ask you for spending money again.

You should use your supplementary income streams to stay current on your outstanding unsecured obligations. After all, you can’t begin saving for retirement without first paying down your current debts.

If you’re still struggling to make ends meet after talking to a financial planner and taking on extra work, talk to one of our certified debt relief counselors. Fill out the online form or call today to learn more about the debt settlement process and start planning your escape from debt.