Let’s cut right to the chase; an alarming number of Americans are carrying debt into retirement, including student loan debt. According to the Federal Reserve, Americans over the age of 50 owed more than $260 billion in student loans in 2018.
What’s the average debt of retired Americans today?
The biggest threat to retiring Americans today may not be saving money, but owing too much. For many people, debt is emerging as a serious problem to a peaceful and planned retirement.
Debt and loans are a constant hammering of stress on a retirees’ ability to retain their homes and pay necessary expenses. Some seniors find their debt has forced them into independent or assisted-living facilities.
The Statistics of Average Retirement Debt.
According to a survey by the Consumer Financial Protection Bureau, 8 out of 10 middle-income Americans currently have some form of debt. 3 out of 10 allocate more than 40% of their monthly income to loans. And, a quarter have a mortgage with more than 20 years left on it. Most people plan on entering their retirement comfortably, but only one-quarter of retired Americans are actually debt-free.
A survey by ValuePenguin in 2019 reveals that the average credit card debt for American households is $5,700. But, when the numbers are fragmented down by age, the average for people aged 65 and older jumps to a whopping $6,351.
That means the average credit card debt load exceeds by double the maximum monthly Social Security payment of $2,687. When the credit card balances are compared to the average monthly Social Security benefit of $1,342 per month, the situation is even worse.
Do they still have student loan debt that late into life?
Statistically, many seniors dealing with student loan debt are the result of co-signing for a family member. The CFPB report reveals that 73% of elderly student loan borrowers said co-signed loans for their child or grandchild. Only 27% were reported obtaining loans for themselves or for their spouse.
We’ve discussed the sensitive nature of co-signing a loan, and this is a common scenario for seniors today. While the retiree may not be the one using the loan funds, they are still responsible for the debt if it defaults. In addition, this loan does show on the retirees credit report, which can also become a detriment if payments are not maintained.
Why student loan debt is the most difficult.
Student loan debt is a very difficult type of debt to recover from. Specifically because debt relief programs, even bankruptcy in most cases, can’t touch it. While there are federal options for repayment plans, forbearances, etc. these are only offered for so long.
This lands seniors in bigger financial risks leading to a variety of potentially unfavorable consequences. Retirees with student loan debts are often forced to work longer before retiring. Many work part-time during retirement to meet their basic living expenses.
Lost Retirement Savings.
A joint report by the Association of Young Americans (AYA) and AARP reveals that 31% of fresh retirees (54 to 72 years old) said student loan debts forced them to stop saving for their retirement. Or, utilize existing retirement savings to clear their student loan debts.
Delayed Health Care.
About 9% of retirees in the AYA/AARP study confessed that student loan debts prevented them from claiming the health care they needed. Fresh retirees with student loan debts had household debt that averaged 48% as compared to 15% for those with no student loan debts.
Credit Issues.
According to Credit Sesame, many retirees can’t qualify for new loans to make needed repairs, buy a new car or deal with other unforeseen expenses.
The AYA/AARP studies reveal that 32% of retirees sadly confirmed that lingering student loan debts either prevented or delayed their purchase of a new dream home.
Inability to Help Family.
More than 1 in 4 retirees confessed that student loan debts prevented them from helping their own family members in need. Oddly enough, the debt itself accumulated from helping their child or grandchild for their education.
To wipe out all your worries about defaulting on your student loans, reach out to your lenders quickly. They will offer options for managing your loans in the short or long-term.
Retiring with student loan debt.
Remember, the goal is to enjoy your retirement years, ideally without the stress of creditors and collectors. While student loan debt is a problem for many Americans currently, there are steps we can take to combat this.
Think hard about co-signing on student loans for family. We know this is a difficult decision, but it does need to be mentioned. If you’re young and paying down debt, focus on your high interest debt first. That’s the debt that costs you the most. Focus on maintaining your normal student loans payments, and try your best to make a few extra payments towards the principle if possible.
