Debt levels are rising for oldest Americans

ON THE MONEY

October 01, 2006|By GAIL MARKS JARVIS

You may be sick of seeing TV ads that remind you not to grow old without first accumulating a cozy nest egg.

Yet the basic message is worth noting: Not the part about having a broker as your buddy, not the part about dancing on the beach with your sweetheart, but certainly the part about living longer than you ever expected and needing a decent chunk of savings to last through it all.

With baby boomers about to retire, and 40 percent of today's 65-year-olds expected to live to at least 90, analysts have been speculating that many retirees will receive the shock of a lifetime when they run low on money and struggle late in retirement.

A recent report on elderly debt indicates that already is happening.

The average inflation-adjusted debt level among elderly Americans has risen 77 percent since 1992, according to a study by the Employee Benefits Research Institute. The majority is mortgage debt. And in the hands of affluent seniors, it apparently doesn't pose a threat. But the oldest Americans, those who can least afford debt, increasingly are holding debt at dangerous levels.

"It looks like they are doing it because they are running out of money," said researcher Craig Copeland.

In the old days, before people started looking at home equity as a piggy bank, Americans tried to get rid of debt before retiring. They realized that during retirement it is difficult to handle the rising costs of everything from medical care to utilities, plus pay off debt.

But Copeland's research indicates that seniors are no longer preparing for the stress of a fixed income the way they used to.

"Families near or in retirement are getting more in debt," he said.

About 61 percent of families headed by people 55 and older are carrying debt, and the amounts are rising sharply.

Among those having debt, the median inflation-adjusted level - with half above and half below - is up 121 percent over 1992, at $32,000. The median housing debt among people 65 to 74 in 2004 was $60,000, a 42 percent increase over 2001, and credit-card debt almost doubled during that time.

Copeland drew the information from the Federal Reserve Board's Survey of Consumer Finances.

Most troubling, Copeland said, are the debt levels among the oldest retirees, apparently a partial hangover from earlier debts they could not unload.

About 29 percent of people over 75 were carrying debt in 2001, but by the end of 2004 it was up to 40.3 percent. And the amounts of debt for people well past their working years climbed to $20,234 on average, compared with $7,769 in 1992.

Housing debt was the biggest factor, primarily because people have been refinancing their homes and pulling cash out, Copeland said. They also have faced the burden of rapidly rising costs of housing.

Apart from Copeland's research, financial planners are telling similar stories based on experience with clients. Many people going into retirement apparently figured they would retire, sell their old home, buy a more affordable home, make manageable mortgage payments and use the savings for living expenses.

But the high cost of housing got in the way, and some people couldn't resist the temptation to pull spending money out of their equity, said Bob Mecca, a Mount Prospect, Ill., financial planner.

Debt is considered dangerous when payments exceed 40 percent of income, Copeland said. While there is no increase in the number of households headed by 55- to 64-year-olds with those high debt levels, problems are mounting for people later in retirement, especially those 75 and older at the lowest income levels.

gmarksjarvis@tribune.com

You can also leave a message for Gail MarksJarvis at 312-222-4264.

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