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Debt and Its Impact on Retirement Savings

According to the Employee Benefit Research Institute, nearly 82% of baby boomers (ages 55-64) are carrying significant debt loads. What does this mean for your retirement? Quite simply, the dollars going toward debt are not going toward your retirement security.

Why are we carrying debt into retirement? Mortgages, educating our children, and caring for elderly parents are taking the brunt of the blame. Not to mention rising health care costs and credit card debt. Some experts also believe boomers are not adjusting their lifestyles in retirement. Whatever the reason, it seems clear we now have to reconcile debt and retirement.


How can retirees balance their retirement income needs and debt payments?

  • Live below your means. Paying off debt and boosting contributions to savings will help you to continue enjoying your current lifestyle better than paying a creditor each month.
  • Downsize your home. You don’t have to wait until after retirement to downsize. Take advantage of a good market and move sooner rather than later.
  • Delay Social Security benefits. By taking Social Security benefits early, starting at age 62, you will lock yourself into a lower benefit for the rest of your life. For every year you delay past your full retirement age up to the age of 70, your Social Security benefit will increase by 8%. Delaying your benefit is a low-cost way to increase your retirement income.
  • Get a second job or work longer before retiring. The longer you work, the longer your retirement savings will have to accumulate and grow.
  • Work longer for an OPERS participating employer. The OPERS benefit formula explained below rewards you for longer periods of service. By increasing the amount of service you have at retirement, you will increase your OPERS retirement benefit.


Good news for OPERS members

We all must do more for ourselves in the form of personal savings and investments for retirement. However, employer-sponsored retirement plans like OPERS and SoonerSave, along with Social Security, provide an excellent foundation for financial security by offering lifetime income sources at retirement.

The OPERS benefit is calculated using a simple formula that multiplies your final average salary, years of service credit in OPERS, and a computation factor (typically 2% for most state and local government employees). Another way to look at it is for every year of service credit you have in OPERS, you are replacing 2% of your final average salary in retirement. For example, if you retire with 25 years of participation in OPERS, you will receive a benefit from OPERS totaling approximately 50% of your final average salary (25 years multiplied by 2%).



This article was first published in the Autumn 2013 edition of the Retiring Right newsletter. Click here to view other newsletters. Not receiving your newsletter, update your address by completing the Change of Address form.

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