You've Been Warned: You Should Never Enter Retirement With This One Burden

Retirement is a lifestyle achievement that takes years of strategizing and lots of plan execution. For one thing, your Social Security checks will cover only a portion of your pre-retirement income. The average monthly Social Security check (as of January 2024) was $1,907. That comes out to a little under $23,000 for the year. This means that most retirees will need to explore additional retirement income-generating tools; for example, a 401(k) or Roth IRA deposit schedule while still in the workforce.

Planning for retirement isn't just about piecing together the income replacement components of your financial picture, however. There are plenty of other factors to consider. One burden in particular looms large over tens of millions of Americans: credit card debt. If you're approaching the end of your working years hastily, taking care of your credit card debt will set you up for much broader financial success than nearly any other action item on your retirement planning to-do list.

Credit cards can be a valuable financial tool. They create plenty of opportunities for borrowers looking to responsibly build their credit and can even come with cash-back rewards and other perks. But spending with a credit card account is rife with danger. Your credit cards come with interest rates that likely make rollover balances the most expensive lending product you use. Mortgage rates are consistently in the single digits, and even personal loans average out in the low teens (12.31% in November 2024, per Bankrate).

If you enter retirement still owing money to a credit card company, you'll almost certainly be guaranteeing a hardship for yourself right from the start. Retirees typically need around 75% of their preretirement income to maintain their lifestyle. But this assumes a reduction in other spending categories that factor into a working adult's life. You're unlikely to have young kids at home or still find yourself paying off your student loans, for example; you also might be near the end of your mortgage payment schedule or be mortgage-free. However, by carrying credit card balances into retirement, you saddle yourself with a large burden that will only grow with time if you don't aggressively work to mitigate it, hampering your retirement lifestyle in the process.

There are plenty of solid payoff strategies people use to minimize and ultimately eliminate their debt. The snowball and avalanche methods are two popular choices. With the debt snowball method, you'll make minimum payments on all but one of your credit cards (the same approach is true for the avalanche method). Focusing on the card with the lowest total balance, you'll focus all your overpayment funding on that account, working to clear the balance as quickly as you can. Once you've eliminated the account's balance, you can move its minimum payment requirement alongside the entirety of the excess funding you've been contributing every month to the card with the next lowest balance. This will "snowball" the speed at which you pay your debt off, increasing the amount you're able to contribute monthly with each new card successfully eliminated.

The avalanche method, meanwhile, starts with the highest interest rate first. By starting here rather than with the smallest balance, you'll save money in the long run by eliminating your most expensive debts in order. However, it can take longer to get to zero on any given account, potentially leaving borrowers a little disheartened. The snowball method is great for those who are looking for concrete and more easily attainable milestones while the avalanche approach is the most cost-effective option but requires greater discipline.

For those in their 60s, in particular, the allure of leaving the workforce is a major motivating factor. At 62 you can start taking Social Security benefits, potentially pushing your retirement income over the top and allowing you to give up the working life. In fact, while early retirement will see your benefits reduced (by 30% if you start drawing them at 62), there are plenty of good reasons to consider taking Social Security early.

On the other hand, plenty of great things happen to your mind, body, and finances when you opt to remain in the workforce just a little longer, thereby delaying your retirement. For starters, drawing a paycheck for even just one additional year gives you more time to finish paying off credit cards and other debt obligations before you turn to your retirement assets to see you through the rest of your life, financially. Rather than eating into your retirement savings to pay off a lingering credit card bill or the remainder of your mortgage, consider staying in your job a little longer to let your paycheck handle the burden.

Moreover, by continuing to work, you'll gain extra years to contribute from that paycheck to your retirement savings, boosting the flexibility and financial strength you enjoy just a short time later. This also allows you to wait to start taking Social Security benefits, increasing the amount you'll receive every month in the process.