Retirement is supposed to conjure up images of financial freedom. But for the majority of retirees, living with debt is still a very present reality. For many, it can also become a heavy burden that weighs retirees down with anxiety and stress.
This week in a companion article here on the Blog, we’re considering whether people approaching retirement should prioritize paying off their house. But apart from questions about carrying a mortgage, there’s a broader issue regarding seniors and debt. These days it seems as though living with at least some consumer debt is almost unavoidable – but how much debt is too much? When should seniors approaching retirement (or those already retired) start to worry that they are truly over-extended?
Seniors and Debt: Who Owes How Much?
Our first source for our look at retirement indebtedness is this recent article from Investopedia. Reporter Daniel Liberto notes that much of the discussion surrounding baby boomers and retirement is focused on those with the most wealth, but that image of the retiree who’s flush with cash isn’t the full picture.
“[T]here’s another side that gets less attention,” Liberto notes: “Many have retired, or are entering retirement, carrying significantly more debt than earlier generations. While retiring with debt used to be considered reckless, it’s now become increasingly common.”
Debt Isn’t Always Bad – But It Can Hold You Back
Liberto observes that retirement debt isn’t necessarily cause for undue worry.
“Carrying debt into retirement isn’t automatically dangerous, but it can reduce how far your savings stretch when medical costs and other expenses crop up,” he writes. “Knowing what baby boomers typically owe can help you put your own debt in context before retirement expenses pile up.”
With that in mind, let’s take a quick glimpse at boomers and debt. Liberto bases his observations on Federal Reserve stats from 2022, the most recent figures available.
Over Two-Thirds of Boomers are Carrying Some Indebtedness
Overall, the Investopedia article reveals, 69 percent of boomers are carrying some debt into retirement. The percentage is highest among younger boomers: fully three-quarters of those in the 58-66 age group are in debt to some degree.
But how much debt are we talking about? For all boomers, the median debt is $62,450. But the overall average – the mean – is over twice that, at more than $147,000. Liberto notes that “even the lower median figure can be enough to strain a retiree’s finances, especially when it has to compete with housing, healthcare, and rising everyday costs.”
Moreover, the trend lines are not encouraging. Median debt in households headed by people ages 65 to 74 saw a fourfold increase between 1992 and 2022, according to the Federal Reserve, while those in households headed by people ages 75 and older saw their level of debt increase seven times over.
When Managing Debt Becomes a Major Problem
For another perspective on the subject of retirees and debt, we also took a look at this article we just discovered from CBS News written by reporter Angelica Leicht. The CBS story zeroed in on our specific question: for retirees, how much debt is too much?
“Retirement is often viewed as the finish line after decades of comprehensive financial planning,” Leicht begins, “but that milestone doesn’t always mark the end of your borrowing needs. Mortgage balances, credit card debt, auto loans and even personal loans frequently carry over into retirement, creating a retirement landscape that looks very different from what previous generations faced.”
She adds that today’s high costs of living and stubborn rate of inflation, combined with elevated interest rates, make it even more expensive to manage that debt, especially for retirees on fixed incomes.
Debt Can Be Used Strategically, but Can Also Become Unsustainable
Leicht writes that some low-interest debt can become a strategic asset for retirement planning. But for retirees, financial circumstances can change rapidly.
“The challenge is, though, that once paychecks stop, there’s often less room to absorb unexpected expenses, rising monthly payments or higher interest charges,” she states. “So, what felt manageable while working can become much harder to sustain when your income is largely limited to Social Security, retirement account withdrawals or pension benefits.”
There’s No One-Size-Fits-All Answer Concerning Retirement Debt
Evaluating whether debt is truly a problem is complicated, Leicht says. “When it comes to debt in retirement, there is no universal amount that signals you’ve crossed into dangerous territory. Rather, the answer depends on how your debt affects your ability to comfortably cover essentials while maintaining your retirement goals.”
Careful scrutiny of your monthly cash flow can be the best indicator of deeper debt issues, she notes. If keeping current on debt payments makes it hard to afford housing, groceries, healthcare or insurance, “that’s a strong indication that your debt has become excessive.”
Different Kinds of Debt Call for Different Strategies
Leicht observes that all debt is not created equal. “It’s also important to look at the type of debt you’re carrying,” she writes.
“A fixed-rate mortgage loan with a relatively low interest rate may be far less concerning than high-rate credit card balances that continue to grow each month. Revolving debt is particularly problematic because elevated credit card rates can quickly increase borrowing costs if balances aren’t paid off in full each billing cycle.”
Major Warning Sign: Borrowing to Pay Off Other Debts
In her CBS News report, Leicht describes a major red flag: borrowing to pay off other creditors.
“Another warning sign is relying on new debt to pay existing obligations,” she states. “If you’re using one credit card to cover another payment, taking personal loans to keep up with monthly bills or withdrawing larger amounts from retirement accounts to cover your debt, your financial situation may be headed toward unsustainable levels.”
Dipping into retirement accounts to cover debt is a double whammy, Leicht adds. Not only are you reducing future retirement earnings, but you’re also increasing your potential tax liability.
Debt Robs Retirees of Financial and Emotional Well-Being
Financial flexibility is extremely important as retirees often must deal with unanticipated costs.
“Retirement inevitably comes with unexpected expenses, whether it’s a major home repair, medical treatment or helping a family member,” says Leicht. “If your monthly debt obligations leave little room to absorb those costs without borrowing again, you’re operating with a very small financial cushion.”
At the same time, don’t overlook the emotional impact of debt. “Constant stress over making payments, delaying necessary healthcare because of debt or losing sleep over finances may indicate your obligations have reached a level that’s affecting both your financial and personal well-being,” Leicht warns. Your emotional state can be just as important as numbers on a spreadsheet when evaluating whether your debt is still manageable, she adds.
Some Tips if Debt Has Become Unmanageable
Leicht offers this sound advice. “If your debt has reached the point where minimum payments are becoming difficult, or balances continue growing despite your efforts, it’s important to act before the situation worsens,” she writes. “Waiting typically gives interest more time to accumulate while limiting the number of available solutions.”
We lack the space here to go into detail, but the CBS News article offers some predictable recommendations. These include:
Debt Consolidation entails using a lower-rate personal loan to pay off high-interest debt. This strategy may reduce monthly payments and provide a clear timeline to eliminate debt. However, borrowers will need a good credit rating to qualify. Also, those “low interest rates” may adjust upwards, so make sure you understand the terms thoroughly.
Home Equity Loans can help homeowners consolidate debt. But be careful, Leicht warns: “These products use your home as collateral and should be approached carefully, particularly when living on a fixed income.” HELOC balances have to be repaid, and those payments add up. (A reverse mortgage is another option worth considering.)
Debt Settlement Programs can allow an eligible borrower “to resolve unsecured debts such as credit card balances for less than the full amount owed,” says CBS News. Other borrowers who want to streamline payments have had success by using debt management programs instead.
Again, just make sure you understand all fees and terms – debt-relief scams are common, warns the Federal Trade Commission.
The Missing Element: a Financial Dashboard
Leicht’s article concludes with a realistic perspective.
“Retirement doesn’t require eliminating every dollar of debt, but it does require you to make sure your debt fits comfortably within your income and long-term financial goals,” she writes. “The earlier you evaluate your situation and explore available solutions…the more opportunities you’ll have to protect both your finances and your retirement lifestyle.”
With that in mind, we ask, why not take the critical step of meeting with an objective financial planner and having them develop a customized financial dashboard? With this vital tool in place, you’ll be able to evaluate all your financial options and choose the best course of action based on your own goals and circumstances.
If you’ll contact us, we’ll gladly recommend a financial professional who can guide you in the process.
Rajiv Nagaich – Your Retirement Planning Coach and Guide
Rajiv Nagaich’s newest program on PBS, called Designing Your Ideal Future, is bringing Rajiv’s powerful message to Americans from coast to coast. This engaging and challenging PBS show is prompting thousands to take a fresh look at the type of planning that will help them succeed in retirement.
In this one-hour PBS special, Rajiv Nagaich takes viewers step-by-step through the principles of creating a retirement plan that truly supports the life you want to live. Instead of generic check-the-box paperwork, Rajiv reveals how to infuse your perspective — your values, goals, and priorities — into every legal document and life plan component so your plan becomes a living system for your future.
Designing Your Ideal Future includes insights from real-world planning examples and a live Q&A with Rajiv Nagaich that answers viewer questions about retirement planning, legal readiness, and family communication. It’s perfect for anyone approaching retirement, currently retired, or responsible for a loved one’s future care — and for those who want a clear, effective approach to planning that prioritizes personal choice and quality of life.
What about you?
You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then these materials are your key to retirement success.
Visit your local PBS station’s schedule to find airtimes and learn how to access companion resources — including a free Legal Readiness Quiz and tools to help build your complete LifePlanning system.
Don’t remain among the millions of Americans sleepwalking their way into a retirement they never wanted. Instead, your retirement can be the exciting and fulfilling life you’ve always hoped it would be. Start by watching, reading and sharing Rajiv’s important message.
And remember, Age On, everyone!
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