SANTA FE, NEW MEXICO – AUGUST 2, 2019: A senior couple sit on a park bench in Santa Fe, New Mexico. (Photo by Robert Alexander/Getty Images)
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The conventional picture of American retirement—house paid off, kids out of the nest, modest spending funded by Social Security and a pension or IRA—has been giving way to something messier for years. What the data now shows clearly is that Americans in their late 50s and early 60s are carrying more debt than any prior cohort at the same age, and the combination of elevated interest rates and approaching required minimum distributions is putting serious pressure on retirement security.
The headline numbers from the Federal Reserve’s consumer credit data and the Survey of Consumer Finances are stark. Credit card balances among households headed by someone aged 55 to 64 reached record levels in 2024, with average balances exceeding $7,500 for cardholders in that age group. Home equity line of credit usage is also up significantly—HELOC balances outstanding nationally surpassed $380 billion in 2024 for the first time since the post-financial-crisis deleveraging cycle. These aren’t debt levels that describe comfortable equity extraction; they describe households using debt to maintain consumption they can’t fully fund from income.
Several structural factors explain the pattern. The cohort currently in their late 50s and early 60s came of age financially during the 2000s boom years, accumulated real estate at high valuations, and then lived through the 2008 financial crisis, which destroyed retirement savings and in many cases forced career interruptions that reduced Social Security earnings history. The subsequent decade of low interest rates encouraged borrowing and reduced the urgency of paying down debt. Now, with rates above 5% on home equity products and above 20% on revolving credit card balances, the carrying cost of that debt has become punishing.
The RMD timeline creates a specific compounding problem. Required minimum distributions from traditional IRAs and 401(k)s begin at age 73 under current law, but the income they generate is fully taxable. For a near-retiree who already has debt service obligations eating into cash flow, RMD income that pushes them into a higher marginal bracket creates a taxation cascade: higher marginal rates, potential Medicare IRMAA surcharges on Parts B and D premiums, and increased exposure to Social Security benefit taxation. The sequence matters because decisions made in the pre-RMD years—what to convert, what to pay down, what to defer—have compounding tax and cash flow consequences.
The triage framework for someone in this position starts with the interest rate on each debt obligation. Credit card debt at 22% is categorically different from a mortgage locked at 3.5%. The 3.5% mortgage rate is below most investors’ expected real return on a diversified portfolio; there’s no rational case for accelerating paydown of that debt at the expense of retirement account contributions. The 22% credit card balance is the mirror image: no investment strategy reliably returns 22% after tax, which means paying that balance down is the highest-return action available regardless of market conditions.
HELOCs deserve their own analysis. The variable-rate structure means that a HELOC drawn down at 8.5% isn’t fixed there—it floats with prime. If the Federal Reserve cuts rates, HELOC carrying costs come down. If rates stay elevated or go higher, the carrying cost increases. For near-retirees, that uncertainty is difficult to manage on a fixed or semi-fixed income, and the risk is asymmetric: a rate increase hits them when they’re least able to increase income to compensate.
Roth conversions in the years before RMDs begin—roughly ages 60 to 72 for most people—represent one of the most powerful tools for managing the downstream tax burden. Converting traditional IRA assets to Roth during years when income is lower than the eventual RMD-inclusive income tends to reduce lifetime tax exposure, even accounting for the tax paid on conversion. The calculus is sensitive to current versus expected future marginal rates, state tax rules, estate planning objectives, and Medicare income thresholds. It’s not a one-size-fits-all answer, but for most people sitting on large traditional IRA balances who expect to face significant RMDs, some level of conversion is worth modeling carefully.
Social Security claiming strategy interacts with the debt question in ways that are often underappreciated. Claiming early—at 62—to generate income to service debt might seem logical but typically costs significantly more over the long run than delaying to 70 and paying down debt from other sources in the interim. Each year of delay past full retirement age adds roughly 8% to the permanent benefit level. For a healthy individual with a reasonable life expectancy, that 8% annual return on patience is difficult to beat with alternative strategies.
The uncomfortable reality for many near-retirees is that addressing the debt picture before retirement is not optional—it’s the prerequisite to retirement going as planned. The earlier that work begins, the more tools are available.
