Retired and in Debt: Help for Senior Citizens

Debt is a growing threat to the retirement plans of Americans. In fact, the only time most retirees will be out of the hole will be when they get put in the ground.
Until then, their golden years are likely to be tainted by financial worries and hardships. The average debt for families in which the head of the household is 75 or older is $36,757, according to a 2017 study by the Employee Benefit Research Institute.

It’s almost impossible to crawl out of that kind of financial grave once you’re in it. A few of the smart moves you can make to avoid it:

  • Get a second job
  • Restructure and live by your budget
  • Postpone retirement a few years
  • Enroll in a debt management program and pay off debt

Whatever your choice, make it fast. Once you’re retired and go on a fixed income, it’s highly unlikely your revenue is going to increase unless you win the lottery or marry one of Sam Walton’s children.

There’s a much greater chance that your income will dwindle and the only option will be to put some of those bills on credit cards, which will just pile on more debt. Much of the credit card debt will be erased when you die, but until then you won’t have much of a lifestyle.

Seniors in Debt: Statistics

Unfortunately, more and more older Americans need debt relief. The percentage of elderly households (headed by someone 75 years or older) carrying debt increased from 31.2% in 2007 to 49.8% in 2016 according to the EBRI study.

For households headed by someone 55 or older, the number was an alarming 68%.

The report said: “The overall trends in debt are troubling as far as retirement preparedness is concerned, in that American families just reaching retirement or those newly retired are more likely to have debt – and higher levels of debt – than past generations.”

A big problem is ignorance. A lot of people simply don’t know or don’t want to know how much money they’ll need to retire comfortably.

How Much Do You Need to Retire Comfortably?

Experts recommend having the equivalent of your yearly salary saved by age 30, three times your salary saved by age 40, six times by 50 and 10 times by 67.
Of course, experts also recommend exercising daily and cutting out cheesecake, and America still has an obesity epidemic. One thing is for certain – nobody is going to get fat on Social Security.

The average Social Security check is $1,404 a month. That adds up to $16,848, which is about $4,000 above the federal poverty level for an individual.

That’s no way to live, yet more than 40% of single adults count on Social Security for 90% of their income. The lesson here is that if you think Social Security is going to provide more than the very basics, you need to think again.

Seniors Have Student Loan Debt

Another thing to consider is that austere as living on $1,404 a month is, that assumes none of those dollars will have to go toward debt. But retirees are finding that turning 65 does not mean everyday financial commitments go away.

Almost 45% of retirees age 60-70 have a mortgage, and 32% of them predict it will take at least eight or more years to pay it off, according to a 2017 survey by American Financing.

People over 60 also carry $66.7 billion in student loan debt, which is almost four times higher than a decade ago. Some of that money they actually spent on themselves, but most of the debt was taken out for children or grandchildren. Whoever benefitted, the average borrower over 60 owes $23,500.

And we haven’t even gotten to health care. Each individual will have different needs, but let’s take an example based on AARP’s health-care cost calculator.

The average 70-year-old non-smoking male will run up $39,295 in medical bills before he dies. Medicare will cover only $19,259 of that.

And that presumes the guy expires at 78. With good genes and good luck, he could last another 15 years, and his medical bills aren’t likely to decrease in that time.

On top of all those bills, people 65 and over carry $6,300 in credit card debt on average.

If you’re retired and all the financial problems listed above reared their ugly heads, your best option is to pray that Google or Apple invent a time machine and you are transported back about 30 years. You can then recalibrate your finances and start saving for a comfortable retirement.

Sadly, that option probably won’t be available for a few more centuries. But if you’re still young enough to do something about your future, two words of advice: Do it!

Plan Early for Retirement

But do what, you ask?

First, formulate a budget. Track your expenses and see where you can cut back or generate more income. Chances are you can find some fat in there.

If you could find $100 a month to put toward retirement, after 30 years it would turn into almost $60,000 with a mere 3% interest return.

If your company offers a retirement plan, dump as much into it as possible, especially if your employer offers a matching contribution. That’s free money.

You might also consider postponing retirement. You can claim Social Security beginning at age 62. But the longer you wait, the more you’ll get.

For instance, if you were born in 1957 and wait until 70 to retire, you’ll get 28% more every month than you would if you retire at 65.Before you can really start saving, however, you need to eliminate debt. The big reason is interest rates, which giveth and taketh away,

They make every dollar you save grow, but also every dollar you owe will grow. A mortgage is the most acceptable and beneficial form of debt because interest rates are relatively low and you are building equity.

In other words, there’s a good chance you’ll get back every dollar (or more) that you invest. With most other debt, you’re just kissing those dollars goodbye.

The worst form of debt is credit card debt due to the high interest rates. The average credit card interest rate was 16.68% in April of 2018. Escaping that hamster wheel is Job No. 1.

Millions of consumers have found help through debt management programs. A credit counselor from a nonprofit company helps consolidate all your debt and works with lenders to lower interest rates. You end up making one monthly payment that is less than you were paying for all those bills and within 3-5 years, you’ve eliminated the debt.

Certified credit counselors also work with clients to keep them on a budget and instill behavior that will keep them from falling back into debt. That way they can start saving for retirement.

More and more Americans are regretting they didn’t do that sooner. You do not want to be one of them.

Sources

Grant, T. (2018, April 4). Older people increasingly loaded down with personal debt. Retrieved from http://www.post-gazette.com/business/money/2018/04/04/Older-people-most-affected-by-personal-debt/stor

Bhattarai, A. (2017, January 16). Student debt now affects a staggering number of elderly Americans. Retrieved from https://www.washingtonpost.com/news/business/wp/2017/01/16/student-debt-now-affects-a-staggering-number-of-elderly-americans/?utm_term=.285c4637acb2

NA. ND. Does Your Mortgage Retire With You? Retrieved from https://www.americanfinancing.net/reverse-mortgage/mortgage-options-after-retirement

Copeland, C. (2018, March 5). Debt of the Elderly and Near Elderly, 1992. Retrieved from https://www.ebri.org/pdf/briefspdf/EBRI_IB_443.pdf

Joey Johnston
jjohnston@incharge.org

Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.