Debt Weighs Heavily On People Near Retirement

The duel between debt and income is spilling over into the retirement years for more and more people.

At one time, it was common to have all the major bills paid and live a quiet, but comfortable retired life with Social Security as the financial foundation.

Now, mortgage, home equity loans, car loans, credit card and even student loan debt are chasing people into their Golden Years.

And income from Social Security can’t hold them off.

The Social Security Administration (SSA) says the average retiree receives $1,301 a month in benefits, or about $15,600 a year. The average for married couples is $2,111 a month or $25,332 a year.

That is less than half the median income of $54,939 (far less in the case of individuals) that the Census Bureau says the median American household took home in 2014.

Average Debt Load For Seniors $140,000

The SSA estimates that about one-third of retirees are trying to live off Social Security alone. Even when people receive money from 401(k) investments, pensions and savings, the median income only grows to $35,107. The disturbing fact is they need every dime of it to deal with the debt they dragged into retirement.

The Federal Reserve Board of St. Louis estimates the average 55-64 year old carries $140,000 of debt, a jump of about $45,000 since 2000.

“Debt is definitely tarnishing the Golden Years,” said Pam Villarreal, a senior fellow at the National Center for Policy Analysis, who specializes in tax and retirement issues. “The expectations used to be that by the time you got to retirement, you’d at least have the mortgage debt paid off and all the other bills pretty much under control.

“But we’re in a different culture now.”

The new culture seems immune to concerns over debt and unaware of how scarce income is when you quit working.

Most Debt Falls In 4 Categories

Mortgages, credit card debt, car loans and student loans are creating financial headaches for people as they near retirement. Each of the four categories includes surprising spending from people who should be using the money for retirement investments or savings.

For example, people who sell their home in one market, then retire to another state and buy another home, often end up with another mortgage payment at a time when they were done or nearly done with that form of debt. Also, the Consumer Financial Protection Bureau says that median monthly spending on housing for seniors with a mortgage is $1,257 a month, compared to $437 for those without a mortgage.

Credit card spending also produced some astonishing examples of careless spending. TransUnion, one of the three major credit bureaus that tracks spending, says that in the first half of 2014, people in the 60-69 category had an average credit card balance of $4,891, more than double the $2,135 balance held by credit card users under 30.

The median balance on car loans for 55-to-64 year olds was $11,700 and the New York Federal Reserve says that the number of people 50-and-older with student loans has more than doubled – from 3 million to 6.9 million – in just the last six years.

The result of dealing with this debt is that people nearing retirement, don’t have much money to devote to it. Only half of the country’s middle-class households – and less than 10 percent of low-income households – have a retirement fund at all.

“People used to be more aware of debt and how crucial it was to pay it off before you retired,” Villarreal said. “But it’s not considered crucial to pay off your debt early anymore. You see people in their 40s and 50s taking out 30-year mortgages at a time when you would hope they would be finished paying them off.

“Debt is just not considered a horrible thing anymore.”