Opinion: Why Seniors Struggle to Retire Credit Card Debt When They Hit Their ‘Golden’ Years

I love a good retirement ad. They usually feature Adirondack chairs, a sunset, and of course, adorable grandchildren frolicking around a couple of exceptionally good-looking older retirees who are definitely NOT stressed out about money. 

There is no way these people have credit card debt.

But guess what?

They are actors. They are not real. And credit card debt for retirees is apparently a very real thing. 

According to LendingTree, 93% of retirement-age adults carry a credit card balance. Yikes!

And by the way, that is in addition to the fact that they have a lot of other debt including auto loans, personal loans, and (gasp!) student loans. 

The truth is many of today’s newest retirees entered the workforce at a time of transition from pension to 401(k)s. While some of them had pensions like their parents and the older workers, many of them did not. 

Companies started phasing out traditional defined benefit retirement plans in the ‘80s, and by the ‘90s new defined contribution plans, primarily 401(k)s were becoming more mainstream. 

At the same time there wasn’t a lot of proactive education about defined contribution plans just yet. 

That put a new responsibility on workers they had never had before. Suddenly workers had to fund their own retirement and within some parameters, choose their own investments. 

There were often incentives to contribute like company matches. That helped get many workers to make at least some contributions. Some chose to ignore the plans completely.

With taxes and other paycheck deductions, this seemed like yet another way someone was chipping away at their paycheck. 

Workforce cultures changed and the practice of working at one company for a lifetime became less common. 

When workers left jobs, they had access to the funds and could opt to take the money out, even if they had to pay penalties. At the new job, they had to re-enroll in that company’s plan, which didn’t always happen. 

Remember that retirement ad? 

It certainly gives the impression that the seniors are excited to be retired. But the truth is a lot of retired Americans didn’t choose to opt out of the workforce. Retirement chose them. According to EBRI, 58% of Americans retired before they intended to leave paid work. 

The reasons? Health-related issues topped the list followed by changes at their company. That includes downsizing, reorganization and sadly, the company going out of business. 

Those online retirement calculators work great if you work the number of years you put into the projections. 

Unfortunately, if the numbers change for the worse, so does your outcome. Compounding in the years leading up to retirement can be magical. But if that last decade or so is cut off, those expected compounded gains can evaporate. 

The advice often received in the years leading up to retirement — to invest for the long term — is more nuanced now. Yes, retirees may live quite a few more years — even decades longer. But they also need to be a lot more protective of their nest egg.  

If there were doubts, the recent stock market pullback proved that older Americans have to be careful with their asset allocation and not bet too heavily on risky investments like the stock market. 

While all this was going on, the cost of living has been ratcheting up. 

Inflation in recent years has eroded the purchasing power and retirement savings for seniors.

Inflation has softened, but prices have not come down much if at all. The cost of housing remains high, with no indication that a material change in interest rates will happen in the near term. 

That makes downsizing more challenging, even while staying put often means paying high property taxes and insurance costs. Let’s not even get started talking about the cost of healthcare!

And that is why seniors are still struggling to manage their debt even as they try to plan their future. The median debt among retirement-age adults is over $11,000. That’s not a small number, but it is also not insurmountable. 

Seniors can and should get aggressive about downsizing their debt. Credit card debt is often the most expensive and should be the first to go. 

Many retired seniors are hesitant to sell investments, and for good reason. Protecting that nest egg is essential. 

But the truth is that if a retiree is paying the average credit card interest rate of around 24%, it would be near impossible to get that return on any investment. 

There is no pain-free way to shut down debt but all options should be on the table.