Retirement should be the moment when you finally stop stressing about money, right? Unfortunately, for most Americans, this is not the case. Eight in 10 middle-income baby boomers are still dealing with some form of debt, according to a study from the Center for Retirement Research at Boston College. Additionally, nearly 30% of retirees spend more than 40% of their monthly income on debt repayment.
Although more than half of baby boomers plan to retire debt-free, the numbers tell a different story. A survey by the Employee Benefit Research Institute (EBRI) shows that only 23% of retirees aged 65 to 74 achieve this goal. Among those 75 and older, the share is slightly higher at 46%, but that still means more than half of retirees in that age group have some form of debt.
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Growing Trend: Debt in Retirement
The rise in retiree debt is nothing new—it has been rising for decades. For example:
• In 1989, only 58% of older households had debt. By 2016, that number jumped to 71%.
• The debt share of households aged 65 and older increased from 41.5% in 1992 to 60% in 2016.
• The share of people 75 and older who are in debt has climbed from 21% in 1989 to 53% in 2022.
These numbers indicate a significant shift in how retirees manage their finances. While not all debt is "bad" debt (such as manageable mortgages), the prevalence of high-interest debt (such as credit cards) is a major problem.
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Why are retirees still in debt?
So what's driving this trend? There are several key factors at play:
• Rising costs: Soaring costs for health care, housing and basic living expenses have left many retirees relying on credit to make ends meet.
• Not saving enough: Numerous studies show that many retirees do not save enough to maintain the lifestyle they want. The National Council on Aging reports that 80 percent of senior households are either experiencing financial hardship or are at risk of financial instability.
• Mortgage deferrals: Unlike previous generations, many retirees still have mortgages into their 70s, adding significant financial stress.
How Debt Affects Retirement Dreams
Debt in retirement isn't just a financial issue, it can have knock-on effects on quality of life:
• Decreased disposable income: Debt payments eat up monthly budgets, leaving little money for travel, hobbies, or emergencies.
• Higher stress levels: Financial insecurity can lead to anxiety, which can harm physical and mental health.
• Fewer options: Carrying debt often means limited flexibility for lifestyle decisions, such as downsizing or relocating.
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How to tackle debt before (or during) retirement
The good news is: with a little planning, you can stay one step ahead. Here are some strategies to consider:
1. Start Early: The sooner you start reducing your debt, the better. Prioritize paying off high-interest loans such as credit cards.
2. Create a realistic budget: Know exactly where your money is going and stick to it.
3. Consolidate Debt: Consolidating multiple high-interest loans into one payment with a lower interest rate can save you money.
4. Consult a professional: A financial advisor can help you develop a strategy that works for your unique situation.
While most people hope to retire debt-free, less than 25% of retirees achieve this goal. What are the key takeaways? Whether you're approaching retirement or a few years away, it's crucial to prioritize debt management.
If you're not sure where to start, consider contacting a financial advisor who can help you evaluate your situation and develop a plan that's right for you. It’s never too late or too early to take control of your financial future.
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Can you guess from this article how many people are retiring debt-free? Tip: Most people want to do this, but the success rate is less than 25% originally appeared on Benzinga.com
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