Financial Planning, Retirement

Too Many Americans Carry Debt Into Retirement

7/5/17 8:00 AM

iStock-547160620.jpgFor many people, retirement means a lot more than simply exiting the workforce. A recent report from the Transamerica Center for Retirement Studies (TCRS), for instance, found that the top three retirement aspirations among surveyed adults were traveling (62 percent), spending time with friends and family (57 percent), and pursuing new hobbies (48 percent). Such activities, though, will likely be hard to enjoy for people with inadequate savings, which could wind up being a lot of Americans given the size of the retirement nest egg they might need.

Indeed, 64 percent of U.S. workers surveyed this year by the Employee Benefit Research Institute (EBRI) estimated that they must set aside at least $500,000 in order to live comfortably in retirement, and more than a third (37 percent) said that they expect they will need $1,000,000 or more in long-term savings. Those are substantial sums of money and 91 percent of Americans in the TCRS survey said that they feel either “very or somewhat personally responsible” for making sure that they will have sufficient income in retirement. Fifty-seven percent of respondents even described themselves as “habitual savers” who always make sure that they are saving for retirement.

However, only one in three surveyed adults said that they currently feel on track to achieve their old-age income needs. That is not too surprising since a GOBankingRates poll found that 23 percent of U.S. adults reported having less than $10,000 set aside for retirement, and roughly a third said that they have no savings whatsoever. All of the above statistics suggest that even though many Americans seem to understand the importance of saving for retirement, their awareness has yet to fully translate into constructive action. A likely factor behind this is debt since people will often put any extra income toward paying off their credit card balances and other financial liabilities prior to setting money aside for retirement.

That is not necessarily a bad idea but sadly, debt loads are very rarely paid down in full and too many Americans wind up carrying large financial obligations with them into retirement. Just look at the study by the Pew Charitable Trusts which found that eight in ten Americans hold some form of debt. Fifty-eight percent of Baby Boomer households have such liabilities, with the median amount owed totaling $70,102. A large chunk of that figure is mortgage debt but many Boomers were found to also have credit card (41 percent | $4,000 median), automobile (35 percent | $14,000 median), and even student loan (13 percent | $19,000) obligations.

More discouraging are the Americans belonging to the Silent Generation (people born from the mid-1920s to the early-1940s) who were found to be carrying alarmingly high levels of debt. For example, 28 percent of households in this age cohort still have mortgage debt ($76,000 median), and similar proportions also have credit card and car loan liabilities. Younger generations fortunately have a lot of time left to learn from these examples and shore up their balance sheets well before reaching the age of retirement.



Sources: TCRS, EBRI, GOBankingRates, Pew Research

Post author: Charles Couch