Your lifestyle and credit needs are changing
Using Credit Cards in Retirement
by Gary Foreman
Reducing Expenses After Retirement
What Does Retirement Look Like to You?
Withdrawal Strategies for Retirement Plans
A Tool to Determine the Best Time to Take Social Security Benefits
After decades of working, you've finally retired. Your lifestyle is changing. And, so is the way you use your credit cards. Your changing needs may mean that you need to manage your credit differently.
To help us understand how to properly manage and use credit cards in retirement, we reached out to Gerri Detweiler. Gerri is Director of Consumer Education for Credit.com. She has been helping consumers with their credit questions for over 20 years and coauthored the free ebook Debt Collection Answers: How to Use Debt Collection Laws to protect your rights available at DebtCollectionAnswers.com.
Q. As people retire, their lifestyles change. For instance, many enjoy more leisure activities. Are there some member benefits that consumers should consider?
Ms. Detweiler: If you plan to travel during retirement, a travel reward card is almost a must. You can get excellent sign up bonuses as well as special discounts or perks (for example, free checked luggage on airline mile cards).
If you don't plan to travel, I recommend a cash back card. Who can't use cash?
Just make sure that if you are using a reward card you want to pay it in full. The interest rate will typically be on the higher side and interest costs will outweigh any benefits you earn.
Q. What about people who are using their retirement to start a home business? What should the newly retired entrepreneur look for in a credit card for their business?
Ms. Detweiler: You definitely want to use a separate card for business if possible. It makes record-keeping a whole lot easier and you may lose valuable tax deductions (such as interest costs or annual fee) if you comingle purchases.
However, it is not necessary to get a "business" card, though that can be advantageous. Business cards are not covered by the Credit CARD Act, the law that prevents unfair billing practices (such as due dates that change from month to month, or payment cut-off times in the middle of the day), among other things. A number of business card issuers have voluntarily instituted some of those protections, but you need to read your cardholder agreement to confirm. You could dedicate a personal card for business purchases. It is not like your card issuer is looking over your shoulder scrutinizing your spending.
But the disadvantage of using a personal card for business reasons is that the balance will most certainly appear on your credit reports. And those balances, if significant in comparison to the credit limit, could affect your credit scores. By contrast, most (though not all) business cards only appear on the owner's personal credit when the account is delinquent.
Q. Everyone is hearing about ID theft. Are retirees more vulnerable to any specific risks because of their lifestyle?
Ms. Detweiler: Young consumers (18-29) are at greatest risk, in large part because they share so much personal information online. But older Americans aren't immune. In particular, they may face several risks and one of those is that they assume because they pay their bills on time, everything is fine. In other words, they aren't monitoring their credit closely and so ID theft can go undetected for a period of time. Other risks may include service providers in their home and carrying their Medicare card, which has their Social Security number on it. Travel can present risks as they may not be monitoring accounts closely for fraud.
Q. Many retirees have had the same credit cards for 20 or more years. Should they consider closing those accounts and replacing them with newer accounts that offer more benefits?
Ms. Detweiler: If you want a card with better features or rewards, consider adding to the card(s) you already have rather than replacing them if possible. When it comes to building a good credit rating, experience matters. Most credit scoring models look at the age of your oldest account, the age of your youngest account, and the average age of all of them. A well-established credit history helps. If you close an account, it doesn't disappear, but after some time, it may fall off your credit reports. (Usually that happens after ten years, though.)
If you are paying an annual fee on an older account you don't want anymore, find out if the issuer will switch it to a no fee account. Many issuers have multiple programs and they can often replace a card with a different one. If so, then you can use that account once in a while to keep it active, and use the new card for the bulk of your purchases.
Q. What's the biggest mistake that retirees make with their credit?
Ms. Detweiler: The biggest mistake retirees make with their credit is assuming it's not that important anymore, especially if they have paid off major purchases like a home. But, you never know when you are going to need it, and when you do, you want it to be in the best shape possible.
You may be retired, but your financial affairs are still working. So, managing and using credit cards in retirement still requires your attention.
Reviewed April 2017
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.
Take the Next Step:
- Will your new retired lifestyle cause you to look at money differently?
- Visit the TDS library for more on life on during retirement.
- Determine if debt could derail your retirement and what you can do about it now. Our checklist can help you. Afterall, one of the most important ingredients for a comfortable retirement is to be debt free when you retire.
- Subscribe to After 50 Finances. You've learned how to work smarter, not harder. This weekly newsletter is dedicated to people just like you. Subscribers get a FREE copy of our After 50 Finances Pre-Retirement Checklist, a list of everything you need to do to be ready for retirement.
Share your thoughts about this article with the editor.