Frank is planning for retirement and has a $10,000 Christmas bonus. Given his situation, what would be the best use of the bonus to improve his retirement prospects?

Frank is planning for retirement and has a $10,000 Christmas bonus. Given his situation, what would be the best use of the bonus to improve his retirement prospects?

• A. Invest in a high‑risk stock
• B. Use the bonus to pay down his credit card debt
• C. Put the money into a savings account
• D. Start a college fund for his children

Answer: (B)

Paying off high‑interest debt is the strongest move for retirement prospects because it eliminates expensive interest costs and immediately improves cash flow. When you have credit card debt, a large portion of your monthly payments goes to interest, which compounds over time and erodes your ability to save for retirement. Using the bonus to wipe out that debt removes that drag, effectively giving you a guaranteed return equal to the card’s interest rate and freeing up money you can later redirect into retirement savings. Investing in a high-risk stock carries the possibility of growth, but it also introduces volatility and the chance of losing money, which is riskier for someone planning for retirement. A savings account is safe but typically offers modest returns, so it doesn’t address the ongoing cost of debt. Starting a college fund for his children doesn’t directly improve his own retirement security and can divert funds away from his own retirement goals.

Paying off high‑interest debt is the strongest move for retirement prospects because it eliminates expensive interest costs and immediately improves cash flow. When you have credit card debt, a large portion of your monthly payments goes to interest, which compounds over time and erodes your ability to save for retirement. Using the bonus to wipe out that debt removes that drag, effectively giving you a guaranteed return equal to the card’s interest rate and freeing up money you can later redirect into retirement savings.

Investing in a high-risk stock carries the possibility of growth, but it also introduces volatility and the chance of losing money, which is riskier for someone planning for retirement. A savings account is safe but typically offers modest returns, so it doesn’t address the ongoing cost of debt. Starting a college fund for his children doesn’t directly improve his own retirement security and can divert funds away from his own retirement goals.