Personal Finance

Suze Orman says you need to eliminate 100% of these expenses before you retire

Rich Duprey

Published: November 22, 2024 7:44 pm

24/7 Wall St. Insights:

• Focusing on a dollar figure to save for retirement is putting the cart before the horse as there is a fundamental step you need to take first before deciding on how much to save.
• Suze Orman says it is critical everyone live below their means, but live within their needs. In that way they will be able to pay off all of these budget-killing expenses before they retire.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Think you’re ready for retirement? Even if you hit your retirement savings goals and you’re ready to collect your gold watch, influential financial planner Suze Orman says you are really not ready unless you completely eliminate certain expenses from your budget.

Heading into retirement without addressing these issues will set you up for major problems later on. Do it now, before you retire, and your leisure years can be one of relaxation instead of stress.

Budget-busting expenses

Speaking on CNBC’s “Women and Money” podcast, Orman was asked just how much money someone needs to retire, but that’s putting the cart before the horse. According to Orman, it is critical for everyone to eliminate 100% of their bills with mandatory monthly payments.

Whether it is your home mortgage, a car note, credit card debt, or student loan payments, it is essential that you get rid of those payments first before you retire. 

When you are retired, you are essentially living on a fixed income. Having to make additional payments to cover mortgage, car, credit card, or student loan payments means you will sap your ability to live comfortably in retirement. So before you retire, get your house paid off, pay off the car loan, and get rid of your credit card and student loan payments.

That may sound easy enough to say, but how do you achieve that? Orman wants you to make retiring that debt your focus and there is only one way to do it: live below you means, but live within your needs.

Weighing wants over needs

We’ve likely all heard the first part of that statement and it is smart financial advice. It is not enough to live within your means, but you need to have more money coming in than is going out if you want to be able to save.

But living within your needs is new. What Orman means is that you need to differentiate between wants and needs. You may want that new outfit at the store, but do you need it? She says all too often people will spend more when they are distressed about their financial situation, so we need to derive as much pleasure from saving as spending, if not more.

Fear causes you to spend money and Orman notes, “You spend more than when you feel less than.”

So what are needs? Food at a grocery store is a need everyone has. Dining out is a luxury and should be eliminated from your budget. Medicine is obviously a need too, but so is gas for your car. Every time you go to make a purchase, ask if it is a need or want, and if it is the latter, don’t buy it.

Enter retirement debt-free

Remember, the purpose of this exercise is to ensure that you are able to save enough money to live comfortably in retirement. To do that, you need to put all your energy into getting rid of these mandatory expenses in your life that consume so much of your paycheck.

Instead of sending a check every month to the credit card company, you could be sending that check to your savings account and building up your retirement war chest.

That’s why Orman says to pay down those discretionary spending bills as soon as possible. You want to go into retirement free and clear so that your money isn’t walking out the door instead of caring for you.

Speaking with a financial planner will help you create a plan that prioritizes saving over spending, buying needs instead of wants, and eliminating all the mandatory payments from your budget. In that way you won’t find yourself living paycheck-to-paycheck anymore and will be able to enjoy your retirement years free from financial worry.