How do you picture retirement? Will your retirement be filled with jumping out of airplanes, skiing in Switzerland and reading a book on a boat? Or will your winter years be comprised of working full-time in order to pay off your debt and maintain a roof over your head? In this economy, it’s the latter.
Debt has become a hindrance for all age demographics. According to data from the Federal Reserve that was analyzed by the Employee Benefit Research Institute (EBRI), senior citizens’ debt has jumped to $50,000 in 2010, up 83 percent from 2001. Nearly one-quarter of seniors over the age of 62 had mortgage debt more than 20 years ago, but that number has close to doubled to 45 percent in 2010.
Most of the debt was accumulated through housing-related debt. A lot of older working Americans borrowed against their houses by taking out home equity loans, refinancing and withdrawing cash and extending the length of their mortgage. Prior to the economic collapse in 2007 and 2008, older Americans were living like they were Donald Trump.
It isn’t just mortgage debt contributing to the erosion of seniors’ retirement years. The Census Bureau published data last month that looked at how the total median household debt for Americans 65 years and older doubled between the years 2000 and 2011. The average debt is around $26,000, up significantly from $12,702.
In the same research by EBRI, it concluded that median credit card debt for seniors older than 75 increased from $838 in 2007 to $1,800 three years later.
Before the credit crisis, senior citizens used the available funds in order to make home repairs, pay for their grandchildren’s school, take vacations, treat the family to something nice and even put the money into the stock market (that didn’t pan out too well).
Youth to suffer too
The future remains bleak as well. With the amount of young people already in debt and many to remain that way until their utter demise, there will be virtually no retirement for Generation Y and millennials.
A survey by Wells Fargo found that more than half (54 percent) of young people say debt is presently their biggest financial concern, while 42 percent said their debt is “overwhelming.” Most have stated if they were given $10,000 it would go directly to their student loans or credit card debt.
When it comes to saving, about two-thirds (61 percent) of respondents label themselves as savers, but only 49 percent are saving for retirement and the majority are putting off saving for the future into their 30s. The study also included a question that asked them why they are delaying saving: an overwhelming 87 percent said they didn’t have money or wanted to pay off their debt first.
Another interesting facet of the survey is that even with the difficult economic climate, students are confident in their abilities to earn money and build a nest egg. More than three-quarters (77 percent) of millennials said if they lost their job today they would easily find a comparable one. (The results of this Wells Fargo study seem to be in par with a research study on narcissism).
“I am glad to see about half already saving for retirement, but we’re also seeing that half of this generation has not started to save and is putting it off until the 30s,” said Karen Wimbish, director of Retail Retirement at Wells Fargo, in a media release. “I can’t stress enough how important it is for this generation to start saving now – the benefits of starting young can’t be recreated later.”
Government has no money
What both of these issues for seniors and youth means in the end is a larger burden on taxpayers and the federal government. The Congressional Budget Office (CBO) reported that Medicaid spending will grow to $536 billion by 2022 and Social Security spending is on track to surge to $1.35 trillion in the next nine years – if the Social Security fund survives by then.
As the national debt continues to grow and the budget deficit surpasses the $1 trillion mark again, Republicans and President Obama have attempted to curb spending by reforming entitlement programs (to a lack of success). When the government runs out of taxpayers’ money, it could become a disaster for those who did not prepare for their retirement years.