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Credit Card Debt and Your Retirement

I read an article recently which provided an extremely alarming statistic. Apparently the average retirement savings held in 401Ks for individuals between the ages of 55 and 65 in the United States is only $100,000.

This statistic completely blew my mind. By just reverse engineering the numbers, I determined that if a person worked regularly from the age of 22 to the age of 55, then they would have saved just barely over $3,000 a year including any gains or losses on their investments.  But what does this number have to do with credit cards?

Let me answer that question with another alarming statistic: the average American citizen also carries about $15,000 in credit card debt. While this is an overall number and doesn't represent just the 55 to 65 year old segment of the population, let's just do a little comparative math of returns vs. payments here for illustration. Let's say you have about $100,000 saved for retirement earning 8% annually in the stock market.  

That's a big number for most younger adults. If we continue to assume that you're a relatively good representation of the typical U.S. citizen, then you probably carry about $15,000 in credit card debt too. So, if you're paying the average interest rate on your credit card debt, then you're likely paying around 14% (the average here includes 0% interest credit cards and those that have rates up to 24%). This means you would be earning about $8,000 a year on your investments, which will obviously decrease once you take it out to spend it in retirement, and you would also be spending about $3,000 a year to keep up with your credit card debt.  The net result is earnings of only $5,000 per year.  

That's simply not going to cut it! What can we learn from these alarming stats?  It's not rocket science.  When improperly used, credit cards can clearly become a huge debt burden which significantly reduces future spending power. If you want to retire comfortably one day, live within your means and only use credit cards to purchase what you can afford to pay off each month.  Then, even if you're not the greatest saver in the world, at least you won't have high-interest credit card debt eating away year after year at what you do manage to save for the golden years.

Photo credit: Shutterstock / mj007

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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