retirement debt bad debt

Retirement Debt – Sinking Boomers’ Dreams

Retirement debt is the problem that boomers didn’t think they’d have…

Sherry* should be retired. She has nearly paid off her 3 family home in a desirable metro area. She has saved over $500,000 in her retirement accounts. And she can count on a social security check, 2 rental incomes and income from her retirement account.

But Sherry is still working. Why?

Enter the Problem – Kids Don’t Grow Up. Parents Still Paying

retirement debt
“grateful” courtesy of WoodlyWonderWorks

Sherry isn’t retired because among other things, she:

  • Sunk $100,000 into her kids and grandkids over the past 10 years bailing them out of trouble. Including paying off an upside down 2nd mortgage on a house purchase in 2007.
  • Has lost thousands annually in rental income because she lets her son and daughter live in her rental units for free.
  • Has accumulated retirement debt that was incurred while paying for capital expenses that she didn’t want to fund with retirement assets… because she’s worried about retirement security.

Here’s the Wall Street Journal on the issue:

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Considering hiring a financial advisor? Not before you answer these 5 questions.

The average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, after adjusting for inflation, according to data from the Federal Reserve Bank of New York released Friday.

Just over a decade ago, student debt was unheard-of among 65-year-olds. Today it is a growing debt category, though it remains smaller for them than autos, credit cards and mortgages. On top of that, there are far more people in this age group than a decade ago.

The result: The composition of U.S. household debt is vastly different than it was before the financial crisis, when many younger households took on large debts they could no longer afford when the bottom fell out of the economy.

The shift represents a “reallocation of debt from young [people], with historically weak repayment, to retirement-aged consumers, with historically strong repayment,” according to New York Fed economist Meta Brown in a presentation of the findings.

Retirement Debt – It’s How They Pay the Big Bills (and some of the small ones)

When Sherry needed to replace her roof, she had 2 choices: use retirement funds or take out an equity loan. Rates were cheap so she chose the loan. It was only $15,000. But then she needed a new furnace. And then some brickwork. Then her septic system failed. Before she knew it, she had spent $60,000.

She also tried to help her kids month to month. The problem was she was racking up credit card debt. What she would’ve used to pay the debt was subsidizing the kids. This debt crept up until it was $20,000, spread deceptively among 4 credit cards.

Add that to the $50,000 that remained on her mortgage 10 years ago and with a few cash out refinancings, she now owes $150,000.

And did I mention Sherry also looks after her mom? Even though her mom is independent, she is age 90 and needs some help.

Summer of Love Becomes a Winter of Debt

retirement debt summer of love
Pennys 1969 Summer courtesy of Mike Mozart

Sherry’s story describes thousands of baby boomers. Caught between trying to secure their own retirement and taking care of everyone else, their desire to help their family is sinking them.

Sherry may be ok financially but she may die at her desk. Constant worry about how to take care of everyone and her bills keeps her from cutting the cord on full time work. It’s so bad that she can’t even think of the fun, exciting things she’d like to do in retirement.

For a boomer, it’s a long way from the carefree period of the 1960s.

The (Difficult) Action Plan to get Out of Retirement Debt and Relax

retirement debt relax
Sherry should relax at the beach instead! Courtesy of Donnie Ray Jones

It’s time to consider how much help your family really needs. Can you help in other ways? Can your kids live with you in your unit, allowing you to rent the extra apartments?

Can your kids really not find a job?  Or are they biding their time, waiting for the “perfect job” to come along? A few years back there was a story in the news about a recent college grad turning down jobs because he wanted the perfect job. In the meantime, his parents were subsidizing his lifestyle. Not cool.

What would happen if you just said, “I’m not paying your cell phone bill this month for you.” Do you think they’d find a way to pay it? You know the answer.

Some situations are complex. And some kids (and parents) really do need help due to illness, loss, and other special circumstances. But if the choice falls between borrowing to oblivion and saying no to your perfectly healthy yet unambitious 26 year old child, you know what to do.

Do you have a story like this to share? Please do so in the comments below.

What’s Your Plan to Get Out of Debt and Secure Your Future Now?

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*Note: Sherry is a fictional amalgamation of common headline boomer debt issues. This character in no way reflects any actual person. Any similarities to a real person is purely coincidental.