In our “spend now, pay later society,” going into debt is considered normal. Advertisers would have you believe that maxing out the credit card and dipping into home equity to finance the American dream is the patriotic thing to do. But debt can be a heavy burden, especially as we approach retirement. As this recent article from Reuters explains, that debt burden is affecting – and even upending – the retirement plans of millions of Americans.
Senior Debt Robs North Carolina Man of His “Golden Years”
Reporter Chris Taylor describes a 69-year-old North Carolina man who knows this all too well. “Allen Lomax knows how retirement is supposed to go,” the Reuters article begins: “By your golden years, you should have paid off your house, built up a big pot of savings, and be able to face the years ahead without fear. The future is not quite shaping up like that for him.” Some decades ago, Lomax took out $130,000 in student loans for graduate school, and ended up landing a job earning a comfortable salary. But then things collapsed.
“His hopes of eventually wiping that bill clean were dashed when he lost his well-paying job in his late 50s,” Taylor writes. “The debt ballooned to $170,000, and stayed with him even after he declared bankruptcy.” Today Lomax is semi-retired and living on Social Security, and as far as he’s concerned, “there’s no way that money will be ever be repaid.” Like a large number of Americans, Lomax is well past 50 – and in a deep financial hole.
Senior Debt Has Ballooned 400 Percent in the Past Three Decades
According to the Reuters article, the median debt for older Americans rose 400 percent between 1989 and 2016. In spite of the growing problem of senior debt, says Taylor, “you do not often hear about it, perhaps because of emotional factors like shame and embarrassment.” In its annual report, released last December, the Transamerica Center for Retirement Studies says that paying off debt is a major financial priority for 40 percent of retirees. Of that number, 29 percent are saddled with credit card debt, 17 with mortgage debt, and 11 percent with a variety of other consumer debt.
We took a look at the Transamerica report and discovered that, among all U.S. workers, almost half are carrying credit card debt and 38 percent have car loans. We found yet another eye-opening statistic: according to LendingTree, the average new car loan in America is $32,480, financed for an average of 69 months. It’s easy to see how this kind of debt burden can have a devastating impact on senior workers, especially when combined with job loss or a health setback. What makes it even worse, as Transamerica also reports, is the fact that a significant number of Americans – recent surveys peg the figure at 24 percent – have no emergency savings at all, and even among middle income earners, the median liquid savings amount hovers at around $5,000.
Some Types of Senior Debt Can’t Be Eliminated in Bankruptcy
In the case of Mr. Lomax, the gentleman cited in the Reuters article, he’s far from alone in having to deal with money borrowed to advance his education. “As of 2018, Americans over 50 owed $260 billion in student loans,” says Reuters, quoting statistics from the Federal Reserve. But unlike some other loans, student loans “typically cannot be discharged in bankruptcy,” and as a result “it can easily haunt you for a very long time – just as it is doing with Allen Lomax.” Nevertheless, he remains philosophical. Lomax told Reuters that, at least, “he will not pass on his debts to his heirs, because any remaining balance will get discharged upon his death.”
Because the problem of senior debt grows more burdensome over time, the sooner we all start to deal with it head-on, the better. Here are a few suggestions from Reuters and from other sources we’ve consulted over the years:
- Avoid debt as much as you can, and pay it off as rapidly as you can. Make it your goal to retire with a minimal amount of debt.
- Work longer. Reuters calls this “the best advice that most will not want to hear,” but quickly adds that staying more years on the job is “inevitable for many.”
- Be honest with your spouse or partner, your family and close friends. Secrecy and shame only make the debt problem worse.
- Consider a reputable consumer credit counseling For advice on choosing wisely, check out these suggestions from the Federal Trade Commission.
- Consult a good financial planner and develop your own financial dashboard. Please contact us an AgingOptions so we can explain the power of this financial tool and refer you to a trusted financial counselor.
Start Now with the Right Plan for Your Retirement Future
The clear message to those planning to retire is to pay special attention to the pitfalls of debt, and do what you can to reduce or eliminate it. However, don’t confuse a financial plan with a retirement plan: they’re not the same! A truly comprehensive retirement plan blends your finances with the other vital facets of retirement, including legal protection, housing options, family communication and medical coverage. There’s only one plan we know of that accomplishes this synergy: a LifePlan from AgingOptions.
We invite you to get the facts about this retirement planning breakthrough by joining Rajiv Nagaich at an upcoming LifePlanning Seminar. These popular events are information-packed and absolutely free. Bring your retirement questions and come prepared for an entertaining and eye-opening 90 minutes with Rajiv. For a current calendar of seminar dates and locations, visit our Live Events page and register online, or give us a call.
Managing your debt load is important in retirement – but it’s only one piece of a larger puzzle. We’ll be glad to show you how the pieces fit together at an AgingOptions LifePlanning Seminar. Age on!
(originally reported at www.reuters.com)