More and more of our readers are going back to work after retirement because they need the money. Some are offered 401(k) plans by their employers. They wonder whether or not they should contribute to a 401(k). Here's one recent question from a reader:

I am a 72 yrs old man, single, live alone, still working and hanging in there. I will start in a 401K plan with my employer. Half of paycheck will go to the fund, the other half to cover expenses. I receive Soc. Sec, and a very small pension. My debts amount to about $40.000.00, Home equity and a mortgage. Small amount in credit cards. After deductions of 401K and taxes and utilities my take home pay is over $1,000.00 a month. I own my home. Question " How can I maximize my savings and pay off my debts?. I hope to keep working to my middle 70's. Thanks


Once you are over the age of 65, there isn't enough time for your money to grow by a significant amount before you'll need to use it. While there should be some portion of growth stocks even in a retirement portfolio, that portion should be between 20% and 50% depending upon your risk tolerance and the amount of time before you need the money.In this reader's case it appears as though the money could be needed in a few years when he decides to top working. Since he has debt to be paid off and it's best to enter retirement debt free, he would be much better off maximizing the amount of cash he can use to pay down that debt. The snowball effect is a good way to go.

But, since he can enter a 401(k) and get an employer match, he should first take full advantage of that benefit. He should contribute enough to the 401(k) to qualify for the full employer match. That's like a guaranteed return, which is hard to find these days in any investment.

After he contributes enough to get the full employer match possible, then it would be wise to put all extra cash toward paying down debts. He should start by paying down his credit cards, then his equity line and finally his mortgage. In suggesting this method of pay down, I am assuming the mortgage has a lower interest rate. If the interest rate on the equity line is lower, then the mortgage should be paid down first.

At the age of 72 with plans to retire in the middle 70s, then he's only got a few more years to work. By making it a priority to get rid of all debt, he won't need as much to live on in retirement when he's no longer able to work. All of his retirement income and savings can be used to enjoy his retirement rather than to pay down debt.

Lita Epstein has written more than 25 books including "Working After Retirement for Dummies" and the "Complete Idiot's Guide to Social Security and Medicare."

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