Ask a CFP® Professional
Christine Wessinger, CFP®
Edelman Direct Advisor
Edelman Financial Services, LLC
Fairfax, VA

Question:

"I am 62 years old and have just returned to work after a year without a job. 

In the past year I have lost most of my retirement savings, and I have approximately $10,000 in credit card debt, which I am having trouble paying due to a high interest rate.

I am now utilizing a functioning budget, but I had to take a $20,000 pay cut when I started working this year.  I have also spoken to the credit card people regarding lowering the interest rate, and I am now diligently working on my other credit issues and will have those resolved shortly.

But I need help!  What can I do now that I am approaching retirement age with credit card debt and no retirement savings?”

- DC Saver LB


 Answer:

It sounds like you are getting back on the right track.  Unfortunately, you may have to work a little longer than you had originally anticipated due to the job loss and the subsequent setbacks.  

The first thing you need to do is focus on paying down the credit card debt.   It is good you have contacted the cards to get the rate lowered.  Have you considered transferring balances to lower rate cards?  Clearpoint Financial Solutions is an excellent resource for debt management if you need further help in lowering your monthly payment. 

I recommend paying down the highest interest rate first, then the next highest rate and so on.   Assuming you are paying high interest rates, it is in your best interest to pay down this debt before you put money in retirement accounts.   Once the cards are all paid off, then you will be able to focus on maximizing your retirement savings.    If you consider your budget and how much you are paying toward the cards, you will soon be able to put that much towards retirement savings.  

You may even want to consider getting a second job to help you get those cards paid off faster.   I know this may not sound appealing to you, but your health may prevent you from being able to work in the future.   It’s better to do everything you can to get your finances in order while you are healthy and able!

After the debt is paid off, the next thing to focus on is building up a cash reserve with the money you were spending paying off your credit cards.  The best way to prevent falling so far behind again is to protect yourself from any major setbacks.  

I recommend having about 12 months worth of fixed expenses in cash.   “Cash” includes any assets in bank accounts, money markets and CDs, which you can withdraw quickly in an emergency.  To calculate your fixed expenses, consider all expenses that will not go away if you lose your job again (like rent, utilities, groceries, etc).  

Once the cash reserve is built up to about 6 months of expenses, the next thing to do is start adding half of your available monthly cash flow (savings) to retirement savings.  The first and best place to save is through the retirement plan offered through your employer.  

Once the cash reserve is built up to 12 months, put as much money as you can into the retirement plan.  If you max out the retirement plan at work, consider funding an IRA.   You will want to talk with a financial planner and tax professional to determine which IRA is best for you.   The financial advisor will be able to help you come up with a diversified mix of investments that are appropriate for your situation.

-Christine Wessinger, CFP®