By Jessica Hall
More retirees are carrying credit-card balances that they’ll struggle to pay off
More retirees are carrying credit-card debt and facing stress in repaying those debts while looking ahead to a slender 2025 Social Security cost-of-living increase and consumer prices that are likely to remain stubbornly high.
In 2024, 68% of retirees reported having outstanding credit-card debt, compared with 40% in 2022 and 43% in 2020, according to the 2024 Spending in Retirement study by the Employee Benefit Research Institute.
“The rise in retirees carrying credit-card debt is a concerning trend, and it highlights the financial strain many retirees face,” said Melissa Murphy Pavone, a financial adviser and founder of Mindful Financial Partners.
The rise in credit card-debt comes as a greater share of retirees said their spending was much higher or a little higher than they can afford in 2024, with 31% saying that, up from 27% in 2022 and 17% in 2020, EBRI found.
“Even though inflation is going down, the cost of everything is really high. Prices aren’t falling. It’s expensive everywhere you go,” said Jennifer Kim, a financial adviser and managing senior partner at Signature Estate & Investment Advisors. “It can be really scary and frightening. Costs continue to escalate, and people feel helpless.”
In addition to spending more, next year retirees will see the smallest cost-of-living adjustment to their Social Security income since 2021. The size of their checks will go up by 2.5% – slightly below the 20-year average of 2.6%.
Read: Credit cards are the ‘financing of last resort’ for older adults as inflation persists
“With consumer prices remaining high, retirees on fixed incomes often use credit cards to cover essential expenses like groceries, utilities and healthcare. The modest COLA increases aren’t keeping pace with inflation,” Pavone said.
In addition to everyday expenses, retirees often face other stressors that can lead to snowballing debt.
Read: ‘A lot of folks are embarrassed by their debt and don’t deal with it’ – 10 ways to tackle credit-card debt in retirement
Unexpected medical expenses can propel retirees to rely on credit cards, especially if they lack adequate savings, Pavone said. A 65-year-old retiring this year can expect to spend an average of $165,000 on healthcare and medical expenses during their retirement, according to Fidelity Investments.
A low level of retirement savings also can force retirees to lean on credit cards to bridge financial gaps, Pavone said, and expenses such as helping adult children or grandchildren financially can further strain retirees’ budgets.
Kim said she often urges people to delay their retirement by three or four years in order amass more savings and investments, cut their debt and postpone tapping into their nest egg. But not everyone can work as long as they want to: About half of all retirees say they retired earlier than planned, according to research by the Transamerica Center for Retirement Studies.
When faced with a mismatch between spending and expenses, it helps to create a budget and look for areas to cut costs, Kim said.
“You have your must-have expenses like rent or a mortgage, taxes, groceries – the things you can’t go without. But shopping, splurging, traveling or giving gifts might have to be put on the back burner until the credit-card debt gets paid off,” Kim said.
People struggling with credit-card debt can consider transferring balances to a card with low introductory rates in order to reduce monthly interest expenses, Kim said.
There are different strategies for paying off credit cards. Some advisers advocate that people pay off the cards with the highest interest rates first before moving on to cards with lower interest rates. Others say that tackling the card with the lowest balance gives a person a sense of achievement and motivates them to tackle the next biggest card balance.
“There are many strategies to tackling credit-card bills, so self-awareness is key to determine which strategy is most effective for a retiree,” said David Flores Wilson, managing partner and financial adviser with Sincerus Advisory.
Consolidating debts can make managing the payback process easier for some, he said. For homeowners, Wilson said using a home-equity line of credit to pay off credit-card balances can simplify payments and lower the monthly interest costs.
While bankruptcy is an option for older adults struggling with debt, it can be a stressful and grueling path, said Skip Skolnik, a financial adviser and founder of Skolnik Retirement Solutions.
According to the Consumer Bankruptcy Project, people over 65 are making up an increasing share of bankruptcy filings, accounting for around 13% – a figure that is growing.
Read: Is it better to die in debt or declare bankruptcy in retirement? You might be surprised.
Skolnik said that for seniors, trying to pay off credit-card debt may not be the best solution. Consumer debts such as credit cards get wiped away when a person dies, while debts like mortgages and car loans stay with their estate and must be paid.
“It may be easier to ignore the debt and die with it than do something drastic like bankruptcy, which can be an exhausting and stressful process,” Skolnik said.
-Jessica Hall
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11-26-24 0535ET
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