Personal Finance

Credit card debt among retirees jumps significantly

Published

2 weeks ago

November 11, 2024

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The share of Americans with credit-card debt in retirement has jumped considerably — a worrisome financial trend, especially for those with little wiggle room in their budgets, experts said.

About 68% of retirees had outstanding credit-card debt in 2024, up “substantially” from 40% in 2022 and 43% in 2020, according to a new poll by the Employee Benefit Research Institute.

“It’s alarming for retirees living on a fixed income,” said Bridget Bearden, a research strategist at EBRI who analyzed the survey data.

Inflation is the ‘true driver’

Inflation is the “true driver” of retirees’ increased use of credit cards, Bearden said.

But it’s not just retirees.

About two in five cardholders have maxed out or nearly hit their card limit since early 2022, resulting from inflation and higher interest rates, according to a recent Bankrate poll.

U.S. consumer prices grew quickly in recent years, as they have around the world due largely to pandemic-era supply-and-demand shocks.

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“If so much of your Social Security income is now going toward your rent, then you have few funds left over for other essential expenses,” thereby driving up credit card use, Bearden explained.

Social Security benefits get an annual cost of living adjustment meant to help recipients keep up with inflation. However, data suggests those adjustments don’t go far enough. To that point, Social Security recipients have lost about 20% of their buying power since 2010, according to the Senior Citizens League.

EBRI polled 3,661 retirees between the ages of 62 and 75 during summer 2024. About 83% were collecting Social Security benefits, with the typical person getting roughly half their income from Social Security.

An ‘expensive form of borrowing’

Credits cards, which carry high interest rates, are an “expensive form of borrowing,” Federal Reserve Bank of St. Louis researchers wrote in a May 2024 analysis.

They’ve only become more expensive as interest rates have swelled to record highs.

Consumers paid a 23% rate on their balances in August 2024, up from about 17% in 2019, according to Federal Reserve data.

Rates have risen as the U.S. Federal Reserve raised interest rates to combat high inflation.

The average household with credit card debt was paying $106 a month in interest alone in November 2023, according to the Federal Reserve Bank of St. Louis.

Retirees’ debt was rising before the pandemic

Rising debt levels were a problem for older Americans even before pandemic-era inflation.

“American families just reaching retirement or those newly retired are more likely to have debt — and higher levels of debt — than past generations,” according to a separate EBRI study, published in August.

More and more families are having issues with debt during their working years, which then carries into and through retirement, the report said.

The typical family with heads age 75 and older had $1,700 of credit card debt in 2022, EBRI said in the August report. Those with heads age 65 to 74 had $3,500 of credit card debt, it said.

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1. Reduce expenses

There are a few ways retirees can get their credit-card debt under control, financial advisors said.

The first step “is to figure out why they had to go in debt in the first place,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. She’s also a member of CNBC’s Financial Advisor Council.

If a cardholder’s income isn’t enough to meet their basic spending, or if a big event like a home repair or medical procedure required them to borrow money, the person should consider lifestyle changes to reduce future expenses, McClanahan said.

Cardholders also need to see where they can cut spending, said McClanahan, who makes these recommendations:

Make sure you don’t have useless subscriptions or apps;
Do an energy audit on your home to find ways to cut your water, electric or gas bill;
Cook more and eat out less, which is both healthier and less expensive.

Retirees may choose to make a bigger lifestyle decision, including relocating to an area with a lower cost of living, said CFP Ted Jenkin, the founder of oXYGen Financial and a member of the CNBC Financial Advisor Council.

Meanwhile, any spending cuts should be applied to reduce credit card debt, McClanahan explains. Consumers can use a debt repayment calculator to help set repayment goals, she said.

2. Boost income

Retirees can also consider going back to work at least part time to earn more income, McClanahan said.

But there might be some “low hanging fruit” retirees are overlooking, advisors say.

For example, they may be able to sell valuable items accumulated over the years — like furniture, jewelry, collectibles — perhaps via Facebook Marketplace, Craigslist or a garage sale, said Winnie Sun, the co-founder of Sun Group Wealth Partners, based in Irvine, California. She’s also a member of CNBC’s Financial Advisor Council.

It’s alarming for retirees living on a fixed income.

Bridget Bearden

research strategist at EBRI

Sometimes, retirees hold onto such items to pass them down to family members, but family would almost certainly prefer their elders are financially healthy and avoid living in debt, Sun said.

Consumers can contact a nonprofit credit counseling agency — such as American Consumer Credit Counseling or the National Foundation for Credit Counseling — for help, she said.

3. Reduce your interest rate

Cardholders can contact their credit card provider and ask if it’d be possible to reduce their interest rate, Sun said.

They can also consider transferring their balance to a card offering a 0% interest-rate promotion to help pay off their debt faster, Sun said.

They may also try to transfer their debt into a home equity line of credit (HELOC), which generally carries lower interest rates though may take a month or so to establish with a lender, Sun said. She also recommends working with a financial advisor to analyze if this is a good move for you: A HELOC can pose problems, too, especially for consumers who continue to overspend.

Additionally, cardholders can determine if the taxes they’d pay on a retirement-account withdrawal would cost less than their credit-card interest rate, Jenkin said.

“It might make sense to let the tax tail wag the dog, pay the taxes, and then pay off your debt especially if you are at a 20%-plus interest rate,” Jenkin said.

Personal Finance

Here’s why you should max out your health savings account

Published

14 hours ago

November 21, 2024

Business Finance News

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Many employees have a health savings account, which offers tax incentives to save for medical expenses. However, most are still missing out on long-term HSA benefits, experts say.

Two-thirds of companies offer investment options for HSA contributions, up 60% from one year ago, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024.

But only 18% of participants invest their HSA balance, down slightly from the previous year, the survey found.

That could be a “huge mistake” because HSAs are “the only triple-tax-free account in America,” said certified financial planner Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta.

Health savings accounts are popular among advisors, who encourage clients to invest the funds long term rather than spending the funds on yearly medical expenses. But you need an eligible high-deductible health plan to make contributions.

Some 66% of employees picked an HSA-qualifying health plan when given the choice, according to the Plan Sponsor Council of America survey.

However, the best health insurance plan depends on your family’s expected medical expenses for the upcoming year, experts say. Typically, high-deductible plans have lower premiums but more upfront expenses.

HSAs can look like a ‘health 401(K)’

HSAs have three tax benefits. There’s an upfront deduction on contributions, tax-free growth and tax-free withdrawals for qualified medical expenses.

If you invest it wisely, it can look like a health 401(k).

Ted Jenkin

Founder and CEO of oXYGen Financial

“It’s one way to deal with the inflationary cost of health care,” said Jenkin, who is also a member of CNBC’s Financial Advisor Council. “If you invest it wisely, it can look like a health 401(k).”

A 65-year-old retiring today can expect to spend an average of $165,000 in health and medical expenses through retirement, up nearly 5% from 2023, according to a Fidelity report released in August.

That estimate doesn’t include the cost of long-term care, which can be significantly higher, depending on needs.

Why employees don’t use HSAs for long-term savings

There are a couple of reasons why most employees aren’t investing their HSA balances, according to Hattie Greenan, director of research and communications for the Plan Sponsor Council of America.

“I think there’s a lot of confusion about HSAs and [flexible spending accounts],” including how they work and how they’re different,” she said.

While both accounts offer tax benefits, your FSA balance typically must be spent yearly, whereas HSA funds can accumulate for multiple years. Plus, your HSA is portable, meaning you can take the balance when changing jobs.

However, many employees can’t afford to cover medical costs yearly while their HSA balance grows, Greenan said. “Ultimately, most participants still are using that HSA for current health care expenses.”

Personal Finance

73% of workers worry Social Security won’t be able to pay benefits

Published

15 hours ago

November 21, 2024

Business Finance News

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Most Americans are concerned about what may happen to Social Security when its retirement trust fund crosses a projected 2033 depletion date, according to a new Bankrate survey.

Nearly three-quarters, 73%, of non-retired adults and 71% retired adults say they worry they won’t receive their benefits if the trust fund runs out. The October survey included 2,492 individuals.

Those worries loom large for older Americans who are not yet retired, according to the results. That includes 81% of working baby boomers and 82% of Gen Xers who are worried they may not receive their benefits at retirement age if the trust fund is depleted.

“Once someone’s actually staring at the prospect of the end of their full-time employment, the seriousness of the need to fund that part of their life comes into full view,” said Mark Hamrick, senior economic analyst at Bankrate.

Still, a majority of millennials and Gen Zers surveyed, at 69% and 62%, respectively, are similarly concerned.

Social Security relies on trust funds to supplement its monthly benefit payments that currently reach more than 72.5 million beneficiaries, including Supplemental Security Income beneficiaries.

While payroll taxes provide a steady stream of revenue into the program, the trust funds help to supplement benefit checks. Social Security’s actuaries project the fund the program relies on to pay retirement benefits will be depleted in 2033. At that time, an estimated 79% of those benefits will still be payable.

What financial advisors are telling clients now

Financial advisors say they frequently field questions from clients on Social Security’s future. And they often tell their clients it’s still best to wait to claim benefits, if possible.

Retirees can claim Social Security retirement benefits as early as age 62, though they take a permanent lifetime reduction. By waiting until full retirement age — generally from 66 to 67, depending on date of birth — individuals receive 100% of the benefits they’ve earned.

By delaying from full retirement age to as late as age 70, retirees stand to get an 8% annual boost to their benefits.

When talking with clients, George Gagliardi, a certified financial planner and founder of Coromandel Wealth Strategies in Lexington, Massachusetts, said he tells them Washington lawmakers are unlikely to leave Social Security’s solvency unaddressed by the trust fund depletion deadline.

But even if that does happen, it still makes sense to delay claiming Social Security benefits until 70, if possible, unless there is a critical situation where it makes sense to claim early, he said.

“My bottom line on the whole thing is, you don’t know how long you’re going to live,” Gagliardi said. “But basically, you want to bet on longevity.”

Experts say retirees need to be mindful of longevity risk — the potential that you will outlive your savings.

Social Security is “inflation indexed longevity insurance,” said CFP David Haas, owner of Cereus Financial Advisors in Franklin Lakes, New Jersey. Every year, benefits are automatically adjusted for inflation, a feature that would be difficult to match when purchasing an insurance product like an annuity.

“You really can’t get that from anywhere else,” Haas said.

Maximizing your Social Security benefits

While more than a quarter — 28% — of non-retired adults overall expect to be “very” reliant on Social Security in retirement, older individuals expect to be more dependent on the program, according to Bankrate. The survey found 69% of non-retired baby boomers and 56% of non-retired Gen Xers expect to rely on the program.

To avoid relying on Social Security for the bulk of your income in retirement, you need to save earlier and for longer, Haas said.

“You need to compound your savings over a longer period, and then you’ll be flexible,” Haas said.

To be sure, shoring up a long-term nest egg is not a top-ranked concern for many Americans now as many face cost-of-living challenges. A separate election Bankrate survey found the top three economic concerns now are inflation, health care costs and housing affordability.

Personal Finance

How Trump’s win was helped in part by young men’s financial struggles

Published

18 hours ago

November 21, 2024

Business Finance News

Voters stand in line at a local polling station in Washington, DC, on November 5, 2024. Americans cast their ballots in the presidential race between Republican nominee former President Donald Trump and Democratic nominee Vice President Kamala Harris, as well as multiple state elections that determine the balance of power in Congress. (Photo by Nicolas Economou/NurPhoto via Getty Images)

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Going into election day, Americans were sharply divided. But the gender gap was among the most glaring splits, with more women backing Vice President Kamala Harris and a majority of men supporting President-elect Donald Trump.

Women favored Harris by an 8-point margin, with the vice president securing 53% support compared to Trump’s 45%. Men backed Trump by a 13-point margin, with 55% favoring Trump and 42% backing Harris — resulting in a 21-point gender divide, according to NBC News exit polls.

Trump gained massive support among men on economic issues, specifically, including Hispanic and Black voters who were feeling particularly pessimistic. Inflation was the top concern among voters overall, followed by the current state of the economy.

A factor that drove young men to the polls may have been perceived economic disparities, according to experts, which ultimately helped Trump win on Election Day.

“Men feel like there’s no pathway for economic mobility for them,” said Julia Pollak, chief economist at ZipRecruiter.

‘That is a huge, huge gap’

There is a growing disillusionment taking hold.

Men are steadily dropping out of the workforce, especially those between the ages 25 to 54, which are considered their prime working years.

A study by the Pew Research Center found that men who are not college-educated leave the workforce at higher rates than men who are. At the same time, fewer younger men have been enrolling in college over the past decade.

In 1995, both young men and women equally were likely to hold a bachelor’s degree, at 25%. Today, 47% of women of ages 25 to 34 in the U.S. have a bachelor’s degree, compared with 37% of men their age, also according to Pew.

“That is a huge, huge gap,” Pollak said.

Schools often tout a four-year degree as the ideal scenario. And in many areas, vocational programs and other alternative pathways “aren’t as widespread” as they used to be, Pollak said.

At the same time, some traditional blue-collar jobs that used to employ more non-college educated men declined due to automation and globalization, leading to job displacement and uncertainty about future employment prospects, experts say.

Altogether, you have a group who feel like they’re “being left behind,” Pollak said.

Brett House, an economics professor at Columbia Business School, agreed: “The great concern is that we are developing a pool of young men that are neither developing the additional skills [nor] education necessary to participate fully in the labor force,” he said — particularly in “former manufacturing industrial powerhouse states.”

These days, young men are more likely to be considered NEETs — neither in employment, education or in training — a cohort that has been hardest hit by globalization and the decline of manufacturing in this country, according to Richard Fry, a senior researcher at Pew.

“When you don’t get rewarded for working, you work less,” Fry recently told CNBC. “That is a basic tenet of labor economics.”

Men were more likely than women to say they believed the results of the election would impact their financial life in the short term, according to a separate survey by NEFE. Those voters largely favored Trump.

Those with less than a high school diploma and those with a two-year degree were also most likely to say their financial life will be impacted by the presidential election. NEFE polled 1,000 adults about their financial feelings in relation to the 2024 general election in October.

“It’s reasonable that many Americans were weighing their current financial well-being and prospects for the future while casting their votes this November,” said Billy Hensley, NEFE’s president and CEO. Hensley is also a member of the CNBC Global Financial Wellness Advisory Board.

Young women have ‘made huge gains’ in the workforce

Meanwhile, women have “made huge gains” in their education and careers and working as much, if not more, than their male counterparts, according to Ali Bustamante, an economist and director at the Roosevelt Institute.

Today, women are getting married and having children later, if at all, and are prioritizing their careers, Pollak said. They’re looking to the government to make that choice less difficult through universal child care and access to abortion, she said.

“There was a time when people were either mothers and wives, or spinsters who worked,” Pollak said. “Now women often are prioritizing the career person over the wife and mother.”

However, while the issue of reproductive rights became a major factor in the 2024 presidential race, it did not drive more women to vote. It also did not prove to be one of the most important issues facing the country among voters overall, exit polls showed.

“Trump’s message resonated with young men,” said Fatima Goss Graves, president of the National Women’s Law Center Action Fund. “The pain that people in this country has been feeling in terms of the economy is real.”

Still, other issues — such as paid leave, affordable housing, child care and equal pay — are also hugely important to families, she said.

“This was one election, but I think it would be a mistake to suggest that women will stop fighting in larger numbers either for reproductive freedom or the things they care about — we have work to do,” Graves said.