More and More Retirees Get Intimidated By Their Soaring Debt Level In 2014


by Jimmy Simond

Source: Global Dispatch

Whether it’s student loan debt or credit card debt or mortgage debt, the word ‘debt’ is looming as a serious threat to the easy and smooth retirement of thousands of American baby boomers. Katherine Dean, head of wealth planning at Wells Fargo Private Bank, says that just as we saw the refinance boom in the late 2000s, there’s another emerging trend of people purchasing homes in their later life and then buying a second home even later. Hence, American seniors are literally saddled with debt.

In fact, according to the CFPB (Consumer Financial Protection Bureau), the percentage of homeowners who are above 65 years of age and are carrying mortgage debt, increased from 25% in 2001 to 34% in 2012. Among those aged 75 and higher, the rate doubled from about 8.3% to 22.5%. In fact, a thought leader for AARP, Janet Taylor said that debt can take a toll on most people, especially retirees. Debt is indeed a constant source of chronic stress for people who are nearing their retirement.

A closer look at the debt issues among the retirees

How do you spend your money? Are you like the average old American who may be spending too large on mortgage and credit cards? Let’s take a closer look at the debt issues faced by retirees.

Credit card debt

As per the National Center for Policy Analysis, senior Americans are accumulating huge amounts of credit card debt. The group has found out that the average credit card balance for Americans (aged 65-74) was $8,000 in 2012, up from $2,200 in 1989. They advise their senior clients not to carry credit card debt into retirement and spend their golden years paying off the high interest balances. Older Americans, who live on a fixed income, can soon find themselves in trouble having to pay a sky-high rate that is not deductible. Nowadays, retirees fail to understand that repaying a 16% credit card balance is similar to earning a 16% debt. Multiple credit cards are not the ally of seniors and this is something that they need to clearly understand. Relying blindly on the debt consolidation companies won’t be of much help if they don’t embrace a frugal lifestyle within their means.

Mortgage debt

One of the crucial questions while going into retirement is, “Should I repay my mortgage debt even if I have to raid my retirement savings account?” Well, it depends. The CFPB says that the average mortgage debt among seniors increased by 85% from 2001 to 2012. If you’re saddled with mortgage debt, you don’t have to consider “how much debt” as the answer is more complicated and it entirely depends on your tax bracket and the size of your monthly mortgage payment. There are some seniors who feel that it’s emotionally too satisfying to pay off their mortgage but this is not the right answer to your problem.

Tips from financial planners for the indebted retirees

1. Debt consolidation: If you haven’t yet spoilt your credit, roll over your debt to 0% interest rate card. Get a loan or a card that offers you a 0% teaser rate 4-6 months and transfer your entire high interest credit card balance to the new card. Credit card balance transfers are often suitable for seniors.

2. Figure out the cause of the issue: Was there an emergency or a health scare? Or is it overspending? Identify the root of the problem.

3. Reduce expenses: Apart from paying off debt, save more to enlarge your nest egg. Use coupons and be frugal.

4. Get a retirement plan: If you still don’t have a plan in place, get one soon as this is the key to success.

Everyone approaching retirement should have a meaningful goal. It need not be comprehensive but it requires more than a calculator.