16 Oct Older Adults and Debt

Debt was something members of The Greatest Generation, those people born in the 1900s to the mid-1920s, avoided. Living through  the hardships of the Great Depression and World War II made these folks frugal, and hardworking. They learned to live without and threw nothing away so they could repurpose or reuse items again. They also paid for almost everything in cash carrying no debt, except for a home mortgage. Today, surviving members of this generation are well into their 90s. Many were able to avoid debt in their retirement due to their life long thriftiness, along with company sponsored pensions paid for life.

Unfortunately, debt has been rising among subsequent generations due to a variety of factors. According to a recent study (March 2018) by the Employee Benefit Research Institute (ERBI), debt has grown in families headed by people 75 and older. In fact, these households have seen a 60% increase in debt, up from 31% in 2007 and about 50% in 2016.

Seniors going into retirement with debt are putting themselves at greater risk for financial instability. Since debt among seniors often exceeds income, older adults are putting themselves at risk of running short of money in retirement.

Why Debt is Increasing for Older Adults

In 2016, according to the National Council on Aging (NCOA), debt among older adult households was $31,300. This is a decrease from a peak of $41,500 in 2010.  Certainly, over the past two decades costs on everything have gone up and the dollar has less buying power than it did 20 years ago. Social security does adjust for inflation each year by increasing payments but the increase does not necessarily keep up with the true cost of living. The issue of debt among seniors is a complicated one which involves many factors:

• Significant medical costs not covered by Medicare. It is estimated the average couple will spend $280,000 in medical expenses not covered by Medicare. Out-of-pocket costs not included by Medicare are: long-term care; dental care; eye exams/glasses; alternative healthcare treatments; cosmetic surgery; hearing aids; and routine foot care.
• Long-term care. The average monthly cost of an assisted living facility is $3,750; a semi-private room in a skilled care (nursing home) facility averages $7,000 per month. The hourly wage of a home health aide is $21.50
• Easy credit. The availability and simplicity to obtain credit cards is making it easier for seniors to open more credit cards and use them for everyday expenses, racking up bills with high interest rates. Seniors are often using cards simply to make ends meet.
• Mortgage debt. Relatively modest interest rates have encouraged seniors to carry a first and/or second mortgage.
• Helping adult children with financial support. Many older adults are helping their children with monthly expenses, automobile insurance premiums, and paying on student loan.
• Decrease in traditional pensions. In the last 20 years, the number of pensions for private-sector employees has reduced dramatically, according to the Bureau of Labor Statistics. Eventually, there are expected to be no pensions offered to employees who work for a public corporation or privately owned company. Businesses have eliminated pensions due to the risk involved with promising to pay a worker a salary for life.
• Impact of the Great Recession. Adults nearing retirement during the Great Recession of 2008 experienced a decrease in money in retirement accounts along with lower housing values.

How to Decrease your Debt

Experts say the best way to decrease debt is to use these guidelines:

• Create a budget so you know the amount of your expenses each month and you don’t spend more than what you should.
• Pay down debt using a system. If you have a number of different cards, wipe out the debt with the smallest balance first (while keeping up monthly minimum payments on other cards). After the smallest debt is paid off then tackle the next debt and so on.
• Devote a larger chunk of money each month to paying off credit card debt.
• Reduce your car expenses by either trading in an expensive vehicle for one that is more economical or go down to one car, per couple, if possible.
• Go back to work, at least part-time. You can then use that extra income to pay off debt a lot quicker.

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