Debt Has Doubled for Retirees. Here's How to Protect Yourself
Introduction
American household debt is higher than ever and it’s only increasing. In the past decade, seniors’ total debt has nearly doubled. Americans aged 70 and older had 88.3% more debt in 2019 than in 2010—three times more than any other group. This surge in debt poses significant challenges for retirees, making it crucial to adopt strategies to protect yourself financially.
Image Description: An elderly couple reviewing their finances and debt status.
The Rising Debt Among Seniors
Debt Increase by Age Group (2010-2019)
| Age Group | Percentage Increase in Debt |
|---|---|
| 18-29 | +25.8% |
| 30-39 | +16% |
| 40-49 | +0.2% |
| 50-59 | +7.2% |
| 60-69 | +28.4% |
| 70+ | +88.3% |
More than 70% of debt for people aged 60 or older was in mortgages. This isn’t unique to older Americans: Mortgage debt makes up at least 70% of debt for Americans starting in their 40s. Credit card debt is also high for seniors. For individuals in their 60s, credit card debt accounts for 7.4% of all debt. That rises to 9.5% for people aged 70 and older. Across all other age groups, credit card debt accounts for just 5.8% of all debt.
Image Description: A chart showing the increase in debt among different age groups from 2010 to 2019.
Why Is Senior Debt So High?
There is no single reason why debt has ballooned for older Americans. An American turning 60 in 2019 would have been in their 40s in 2007 at the beginning of the Great Recession. For many Americans, the prime time to pay off a mortgage is in their 40s and 50s. The recession made paying a mortgage very difficult. Monthly payments for adjustable-rate mortgages increased, and anyone who was planning to refinance a mortgage around that time likely couldn’t, extending how long it took to pay off their mortgage. Additionally, most Americans don’t have enough savings to cover their costs of living, leading to increased credit card debt when emergencies arise.
Image Description: An elderly individual struggling to manage increased mortgage and credit card payments.
Tips for Avoiding Debt Later in Life
1. Pay Off As Much Debt As You Can Before Retirement
Carrying debt into your 60s can have a number of adverse effects. One example is that it can lead some people to begin taking Social Security benefits earlier to help pay down debt. This leaves retirees with a lower monthly benefit in the long term.
Image Description: A senior paying off debt to secure a financially stable retirement.
2. Consider a Reverse Mortgage
If you are trying to pay off a mortgage in your 60s, consider a reverse mortgage once you reach age 62. This allows you to make money off the equity you have in your house. It can also be a better alternative than a home equity line of credit, also known as a second mortgage.
Image Description: A senior couple discussing the benefits of a reverse mortgage with a financial advisor.
3. Save More... But Really
Everyone should commit to saving more in retirement accounts and in an emergency savings account (go for a high-yield savings account). It’s a common belief that people spend less once they reach retirement age. This isn’t always the case. Expenses for clothing and transportation do generally decrease, but some expenses increase. The biggest example is healthcare. Spending data from the Bureau of Labor Statistics (BLS) show that average annual health insurance costs are $1,188 higher for people aged 65 to 74 than for people aged 45 to 64. The cost of medical supplies, drugs, and overall medical care can also increase.
Image Description: A senior setting up an emergency savings account to prepare for unexpected expenses.
4. Contribute to Retirement Accounts
Since you typically won’t have a steady income after you retire, it’s vital to have some retirement savings so you can cover your bills. A 2019 study from Vanguard found that the median 401(k) balance for individuals aged 65 and older was just $58,035. Our previous study on the average cost of retirement found that you should expect to spend at least $800,000 over a 20-year retirement.
Try to save more for retirement this year. Do you have a 401(k) through your employer? If so, make sure you’re contributing something. If your employer offers a match, try to at least contribute up to the full match—otherwise, you’re passing up on free money.
Image Description: A senior couple reviewing their 401(k) contributions and retirement plan.
Conclusion
Debt among retirees is on the rise, but with careful planning and proactive financial management, it is possible to protect yourself from the burdens of debt in your later years. Paying off debts early, considering financial options like reverse mortgages, saving more, and contributing to retirement accounts can help ensure a more secure and stress-free retirement.
Image Description: A happy retired couple enjoying a debt-free and financially secure retirement.
