Retirement Is No Holiday From Debt
By TOM LAURICELLA
Gone are the days when most Americans went into retirement with little credit-card debt and without a mortgage. Now, for a growing number of seniors, high levels of debt are threatening their retirement dreams.
At any age, debt troubles are a major challenge and can take a heavy emotional toll. But for retirees with limited ability to boost their income and greater likelihood of big medical bills, it's even more of an uphill battle.
The good news is that debt problems aren't a dead-end street. There are many free or low-cost resources designed to help ease the financial burden seniors face.
The statistics on debt among older Americans reflect a stark change in their finances. "More people are going into retirement with debt," says Craig Copeland, a senior research associate at the Employment Benefit Research Institute.
EBRI has been tracking debt levels going back to 1992. In the group's most recent report, released last month, which captures trends through 2010, the percentage of American families with a head of household aged 75 or older carrying debt rose to 38.5%, up from 31.2% in 2001.
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Back in 1992, one quarter of Americans families ages 65 to 74 had debt tied to their home. In 2010, that stood at 41%, including homeowners who are tapping the equity in their homes via reverse mortgages. Meanwhile, for those 75 and older, the percentage with a mortgage or other housing loan was 24%, up from 7% in 1992.
Worse, those carrying high levels of debt compared with their income have also become more numerous. In 1992, 4% of families ages 65 to 74 had debt payments greater than 40% of their income. In 2010, that figure hit 8.3%.
For those struggling with debt, the first step is tackling the expense side of the equation, such as downsizing cable or phone bills.
But for seniors, there are also often local programs which can help save money on many expenses. "There are lots of public benefits that people can tap into," says Jean Setzfand, who heads up financial security programs for AARP.
The first step, she says, is to check for programs with nearby senior centers as well as a state or local "Office on Aging." Another resource is BenefitsCheckUp.org, a website run by the National Council on Aging, which can help seniors find programs to lower their costs of medical care as well as food programs and utility-bill discounts.
Patricia Dudek, an attorney specializing in elder law in Farmington Hills, Mich., sees many seniors running into debt problems because their financial plans never accounted for sharply rising property taxes. Seniors can appeal to their local tax collector to lower their bills, she notes, and many states offer seniors special property-tax abatements.
The next step is managing the debt itself. Many turn to credit-consolidation companies rather than do it themselves, but it's an avenue that requires treading carefully.
"You have to be really cautious," says Ms. Dudek, "there are some scams out there."
The No. 1 rule of thumb: Never make a big upfront payment to a debt consolidator. The New York Better Business Bureau provides tips on debt-counseling programs and the National Foundation for Credit Counseling can
provide help locating a debt counselor.
For those who need legal help with managing their debts, there are legal-advice hotlines, such as those offered by state-run programs in Florida and Alabama, or specialized programs such as Elder Law of Michigan.
For many people, confronting a debt problem can be an embarrassing or scary proposition. It may seem easier to just let the bills pile up or not answer the phone when debt collectors call. "But doing nothing is not a good solution," says Rus Halsey, director of operations for Greenpath Debt Solutions, a nonprofit debt counseling company.
Still, the best defense is a good offense when it comes to avoiding debt problems. When it comes to retirement planning, "expect the unexpected," says AARP's Ms. Setzfand. That means building an emergency fund to cushion the blow from a loss of income or surprise big expense, she says.
And be aggressive in paying down debts, she says. "The more you can pay off those big debts sooner rather than later, the better."