65 is just around the corner and everything you put off over the years is now staring you in the face. Even if 65 is further away, time flies! We all agree, “What happened to the time?” Maybe it seemed like just yesterday you were buying your first home and starting a family. It appeared you had plenty of time to set aside money for retirement.
As the children grew they had expenses that needed to be covered so you paid for camps and new technology instead of retirement. Your parents got sick and you found yourself helping them out each month, and even taking on debt to cover everyone’s demand for assistance. What were you supposed to do? Everyone needed financial help and you had to pull a ‘rabbit out of the hat’ on a regular basis. You made this happen by lowering contributions to your own retirement and taking on more debt than you wanted. Maybe you refinanced the house a couple times, took out parent plus loans for your child’s college, and ran up credit card debt. This debt covered needed home improvements, college costs, parent’s medical bills, and other unexpected costs over the years.
Now retirement is here and the income is lower than you imagined, you still have 12 years left on the mortgage and credit card accounts are maxed out instead of paid off.
Welcome to Today’s Retiring Class
This is not an isolated example, but rather the norm. The plight of today’s baby boomers reaching retirement age by 10,000 strong every day, introduces a whole new set of problems never been faced by seniors before.
Look at the numbers from millennials to boomers: A recent report put out by the Federal Reserve Bank of New York discovered that those reaching 65 are carrying 47% higher mortgage balances and 29% higher automobile debt, than carried in 2003, even after adjusting the figures for inflation. Using homes to cash out equity and trading up are common causes to higher mortgage balances carried into retirement.
Statistics show debt tables are turning. Prior to the 2008-10 debt crisis, younger borrowers had weaker credit, slower payment histories, and higher debt balances. They bought homes, cars, and carried credit card balances, as families started and careers began. Today’s millennials are facing new credit challenges that come with the tightening of credit qualifications. Now a 30-year-old carries an average of three times the debt in student loans of prior generations, but has been slower to finance homes, lowering their overall debt numbers.
The older generation came into the crisis with more assets, stronger credit, and stable income allowing them to add new debt even as credit became less available. Now when careers are coming to an end, it becomes a juggling act to figure out how to get debt paid off as retirement begins.
According to the Federal Reserve’s report, the fourth quarter of 2015 saw a rise in total debt balances of $51 billion dollars bringing total consumer indebtedness to $12.1 trillion. This has followed a steady increase in debt balances over the last two years. In the last quarter of 2015, mortgage balances remained the same, while credit card, auto loans and student loan balances rose. Higher delinquencies have not followed closely behind and remained the same for auto and student loan debt. Mortgage and credit card delinquencies both fell slightly.
The question on everyone’s minds is what will happen to delinquencies as baby boomers leave the workforce? Will they continue to be able to support high debt payments when income and assets are declining?