More boomers have acquired significant debt during the economic downturn than any other age group, raising the prospect that many will carry that debt into retirement.
A report by Securian Financial Group in St. Paul, Minn., found that 38 percent of boomers surveyed in 2009 had consumer debt of $25,000 or more. That’s a 9 percent increase from a survey of boomers taken as the downturn began in 2007.
By contrast, the percentage of adults in all other age groups with debt of at least $25,000 had stayed virtually the same during the 16 months between fall 2007 and February 2009, when the polls were conducted.
Boomers have taken on more debt for a variety of reasons, says Kerry Geurkink, director of individual annuity marketing for Securian, a financial management and insurance company. Among them: losing their jobs or taking pay cuts, caring for their elderly parents, putting their children through college and coping with rising medical debt.
“The biggest takeaway from the report is that Americans are getting more serious about managing debt, and we’re saving more,” says Geurkink. “The not-so-great news is that a lot of people are not spending down debt, and the boomer generation appears to be taking on more.
“The greatest concern is not just the amount of debt, but people’s financial priorities have changed,” she adds. “When people have large amounts of debt, they’re much more likely to shift their priorities to pay off bills, and what comes second is retirement. That shouldn’t be.”
Overall, the survey found that Americans focused more on saving money and trimming expenses as the recession worsened. (See chart below for income- and savings-generating strategies.) Although the debt incurred on average had not risen, the study concluded that few consumers reported paying down their balances.
Geurkink says that boomers’ willingness to take on debt, rather than save up for purchases as their parents might have, is a pattern that must be broken. Buying goods and services now, and paying later, could jeopardize boomers’ ability to live comfortably on a fixed income in retirement.
“Retiring with debt means that they’re going to have less resources than what they expected in retirement [because] those resources will be used for debt,” says Mauricio Soto, a research associate at the Urban Institute in Washington and an expert on older Americans and debt. “Many people will realize they might have to extend their work life to pay their debt.”
That means they must remain healthy enough to work and they must be able to overcome the challenge of finding work at an older age, he says.
The Securian study of 1,204 people, released May 20, compared the differences in attitudes about debt among four generations: Gen-Y (born 1981-1987), Gen-X (born 1965-1980), boomers (born 1946-1964) and the Silent Generation (born 1934-1945). Mortgage debt was not included in the study, called “Debt: The Detour on America’s Road to Retirement.”
According to the poll, more than one in five boomers (22 percent) surveyed in February 2009 said they owed at least $50,000, nearly double the 12 percent who reported those debt levels in the fall of 2007.
Older adults in the Silent Generation also reported a troubling amount of debt. More than one in five (22 percent) said they owed $25,000 or more in 2009, the same as in 2007. Experts in the aging field have blamed older Americans’ rising debt levels in large part on escalating medical bills and drug costs that outpace inflation.
Interestingly, Americans may not be completely realistic about retiring with debt, the poll showed. Only one in five surveyed said they expect to retire with debt, yet more than half of the retirees surveyed, 54 percent, said they had debt when they retired. Likewise, 24 percent said they’ll retire with a mortgage, but 48 percent of retirees polled said they carried a mortgage into retirement.
Geurkink offered these tips to prepare for retirement:
* Pay down debt, starting with the credit card or loan with the highest interest rate.
* Use that money to double up on payments of other credit cards or loans.
* Sock away money in a tax-deferred retirement account such as a 401(k).
* Delay impulse buys.
“Tomorrow is today,” she says.
Carole Fleck is a senior editor at AARP Bulletin Today.