Retirement With Gobs of Debt – A Boomer Dilemma
Posted On October 4, 2016
How much debt are you carrying? Most of us have some credit card debt. Many of us also have mortgages or student loans. Some of us are also carrying debt from home equity loans or lines of credit.
As we get older, the volume of debt we’re carrying becomes an exponentially greater threat to our retirement – particularly with the demise of pensions and private-sector retiree healthcare benefits.
One might think Baby Boomers would be past some of this, having gone to college before tuition skyrocketed and having had plenty of time to pay off their homes. But while they got their educations on the relative cheap, many of them may have borrowed in order to help their offspring get through college – and likely used the equity in their homes to do it.
According to research from national insurer Prudential, the median level of housing debt for people ages 65 to 74 grew 393 percent over the last 25 years, five times more than the increase of median values of their primary residences over the same period. Prudential attributes this to low interest rates, heavy refinancing and easier access to credit.
Cash-out refinancing, in particular, has grown in popularity, according to the Prudential study, accounting for nearly half of all borrowers who refinanced between 1985 and 2010.
With higher debt levels, Baby Boomers need a higher level of savings in order to cover those payments while still salting away something for retirement.
Prudential encourages Boomers to carry life insurance, which it of course sells, even into retirement to guard against the increased burden that debt can create when a spouse dies. A couple’s housing debt remains the same when one spouse dies, while household income – whether they be a paycheck or Social Security benefits – decreases.
While the purpose of the Prudential study is to sell insurance – and to convince older customers to continue to carry it – there’s another lesson here for all of us. Saving for retirement, a task that now falls mostly upon us with little help from employers, is growing tougher and yet more important at the same time.
As we deal with the higher costs of education and practically everything else in life, including making payments on the debt we already have, it’s increasingly difficult to commit to saving for the future. But with debt more likely than ever to follow us into retirement, it’s critical that we have enough money set aside to not only carry us through our golden years, but to continue to pay off the debts we accrued along the way.