“Shark Tank” star Kevin O’Leary knows how startup businesses succeed — or fail.

Most businesses make it past that crucial first year by finding investors while controlling costs tooth and nail.

If only retirement investment advice had that same approach.

“If you want to find financial freedom, you need to retire all debt — and yes that includes your mortgage,” O’Leary told CNBC.

Your personal break-even, that moment where, like a business, you’re going to thrive or fail, is age 45, he says.

By then, O’Leary warns, you should be debt-free. No mortgage, no credit cards, no student loans.

It’s a tall order. Huge numbers of baby boomers are hitting 65, an estimated 10,000 of them a day. Many are leaving work, too, by choice or not.

And many of them, unfortunately, carry debt into retirement.

Debt free

The problem, as O’Leary explains, is that debts compound. It’s extremely hard to manage a growing debt load on a fixed income that does not grow.

He didn’t pick age 45 by chance. Even good savers need two decades of investment compounding to retire on their own terms.

Paying down debts past 45 will mean less money growing in your retirement savings and more paid out to cover outstanding liabilities.

Look, I know it’s extremely hard to just be debt free. But O’Leary’s point is well-taken. You can’t grow money prudently if your debts grow faster.

That’s a key financial concept that many folks simply don’t grasp. It’s a rare investment that grows faster than the economy and inflation.

But most debts absolutely grow faster — some much faster.

Consider a typical retirement portfolio of stocks and bonds. You might be able to get 6% or 7% a year, averaged out. Some years will be higher, some will be lower. Go with more stocks and maybe you’ll make a bit more, with more ups and downs, of course.

Getting 7% means your investments will double in roughly 10 years. Then, over the following 10 years, that existing balance can double again, even if you stop saving. Compounding growth is a wonderful thing.

Unless it’s not. Your mortgage might be costing you less than 5%, but that only means your housing debt is compounding slightly more slowly than your retirement pot is growing.

If you have student loans, same thing. Credit card debt, meanwhile, is compounding on the order of 13%, 19%, or higher.

Say you have $10,000 on a card at 12.9%. If you carry that for five years the real cost to you is $13,621. Carry it for 10 years and the cost mushrooms to $17,846.

That’s nearly $18,000 that you did not put into your own retirement plan. It’s money that will not compound on your behalf and which buys you nothing at all. It’s just wasted.

Fine print

When it comes to investment costs, the same dynamic kicks in. If you pay 2% of your assets a year to a mutual-fund manager or financial adviser, that’s not 2% of your yearly returns.

People miss this in the fine print all the time. A 2% annual charge on your total assets is a lot of money. For many investors it’s thousands of dollars a year.

And it’s charged whether you have a good return or the market sells off.

In fact, over time, high-fee funds can absorb essentially all of your potential gains. You take the investment risk and the managers and your adviser keep the returns.

Ideally, advisers should help lower their investment costs using index products and provide truly conflict-free advice — such as how much risk to take for your personal goals, when to rebalance, and timely financial planning ideas.

O’Leary’s right. If you can’t make his debt-free timeline work right now the next best thing is to get started toward that goal.

Meanwhile, remember to contribute to your own future through prudent, low-cost investments. That way your money will compound into a solid financial base for retirement.

This article originally appeared on MarketWatch on Dec. 3, 2019.

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