Jul 11, 2026
Americans, on the whole, are in debt, but Gen Xers are in more debt than most. Gen Xers are between 46 and 61 years old, and according to Experian, in 2025, they owed an average of $158,105 in total consumer debt.
Unfortunately, as members of this generation get nearer to retirement, carrying substantial amounts of consumer debt becomes an increasingly big problem as it creates tough choices about whether to prioritize payoff or retirement savings. It also raises questions about whether it’s even possible to retire with high monthly debt payments.
Advertisement
Let’s pretend, for example, that Stan is 50 years old, has $30,000 in credit card debt and is hoping to retire in just one year. Unfortunately, Stan has to decide whether he should max out his 401(k) to prepare for his future, or whether he should focus on paying off his credit card debt to eliminate this big obligation.
Thanks for subscribing!
Take control — get our free newsletter.
By signing up, you accept Moneywise Terms of Use, Subscription Agreement, and Privacy Policy.
What is Stan’s best path forward?
While Stan may want to focus on maxing out his 401(k) contributions, this may not be the best path forward for a couple of reasons.
For one, credit card debt is very expensive. The Federal Reserve Bank of St. Louis reported the average interest rate was 21.00% as of April. A $30,000 credit card balance at 21% interest would generate $522.15 in interest over the course of 30 days.
Paying off the cards also effectively provides a 21% risk-free return due to the interest savings. No investment you can make in your 401(k) is likely to allow you to earn a return that’s even close to comparable.
Stan could invest enough in his 401(k) to max out his employer match, as if his company matches 50% or 100% of his contributions up to a set percentage of his salary (a common arrangement) he would get up to a 100% ROI from maxing that out. However, he should redirect the rest of his money to his creditors until he’s debt free.
“My advice would be to pay off the debt first,” John Rafferty, a partner and investment advisor representative at Solomon Financial, told Moneywise.
Must Read
- The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100
- Here’s the average income of Americans by age in 2026. Are you keeping up or falling behind?
- Insurance companies profit most from drivers who auto-renew without shopping around. Comparing 100+ quotes takes 2 minutes and costs nothing
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
The bigger obstacle standing in his way
Unfortunately, the $30,000 in debt that Stan is carrying is probably not the only thing standing in his way of retiring next year.
Rafferty advised paying off the debt before maxing out a 401(k), but he also said that the clear next step is to “solve the problem that created the debt.” And that very likely comes down to one major issue. “The situation resulted from not having enough liquid savings,” said Rafferty.
Advertisement
If Stan had a substantial amount of savings accessible to him, he likely wouldn’t have $30K of high-interest debt. So, in addition to paying off debt, he needs to prioritize cutting his spending, and building up a savings account as key goals to avoid getting back into debt in the future.
“Overall, this person is not ready to retire and should pay off the debt first,” Rafferty summed up. “Then get an emergency savings account funded without accumulating more debt. Then they need to see if they have enough assets to retire.”
Reviewing income sources
Finally, Rafferty pointed out yet another issue that could prevent Stan from retiring at just 51 years old, especially with the debt he is dealing with.
“If you have $30,000 in debt, you cannot expect to retire next year,” said Rafferty. “One main reason is your income. Where is it going to come from in retirement? You cannot draw from Social Security until you’re at least 62 years of age. In general, any early distribution from a retirement plan comes with a 10% early withdrawal penalty from the IRS.”
Rafferty did say that there are some circumstances where you can take a one-time distribution without penalty. He also explained that “section 72(t) of the IRS Code permits you to take substantially equal payments based on your life expectancy without an early withdrawal penalty.”
But, the rules for substantially equal payments can be complicated, and failure to follow them could trigger retroactive penalties that could be quite costly.
Even with these options, since Stan is still coping with $30,000 of debt, getting from that point to retirement in a year is almost assuredly not going to happen. He should create a more realistic plan that starts with paying off debt, and includes investing in savings and a 401(k) to build a safety net and a nest egg to support him for life.
You May Also Like
- JP Morgan sees gold hitting $6,000/oz before 2027 — and a Gold IRA lets you hold the physical metal while deferring the tax bill. Get your free guide from Priority Gold
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
