Even the hardiest of nest eggs can be compromised if you enter retirement saddled with debt—which many older Americans now do. In fact, according to a new report from the Employee Benefit Research Institute, retiring with debt and carrying it beyond age 75 has become America’s new normal. What’s it mean to you? Whether you are young and far from retirement…closing in on retirement…or even recently retired with many more years to live, the study’s findings can give you important guideposts—and warnings…
Debt is rising for seniors, especially among the oldest heads of household. In 1992, 53.8% of families headed by people age 55 and older held some debt. By 2016, that number had jumped about 14 percentage points to 68%. That increase was most dramatic for the oldest heads of household. In just under 10 years, the percentage carrying a debt load soared among families headed by people age 75 or older, from 31.2% in 2007 to 49.8% in 2016.
What to do:
- If you are relatively young, avoid taking on too much debt over the years.
- At any age, while you are still working, be sure to build up your retirement savings.
- If you are approaching retirement, give strong consideration to working a few more years before you retire.
Overall, debt seems to have peaked and tapered off—but not for the elderly. The year 2010 was the high watermark for the size of the debt accumulated by families headed by someone age 55 or older. That year, their average debt was $82,968. By 2016, however, that number had decreased to $76,679—both figures are calculated in 2016 dollars, meaning adjusted for inflation. Debt as a percentage of assets also decreased during the same period, from 8.4% in 2010 to 6.5% in 2016.
The trend did not hold true, however, for the oldest Americans represented in the study. The percentage of heads of family age 75 and up with debt payments totaling more than 40% of their incomes—a number the study says is a key benchmark for financial health—grew by more than 23% between 2007 and 2016. In fact, the percentage of study participants age 75 and up who carried excessive debt payments compared with their incomes rose to the highest level since 1992. Families with elderly heads of household, therefore, are now at a greater risk than they’ve been in a quarter century for debt-related financial ruin in retirement.
What to do: For many people, spending habits in retirement are by the seat of the pants—not a safe strategy when your earnings potential has narrowed. Instead, make sure that you will have an adequate income stream once you are retired.