key takeaways
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Nearly 7 in 10 baby boomers had debt in 2022, with younger boomers more likely to have debt.
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Mortgages are where this generation owes the most, with an average debt of $116,000 on their primary residence.
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Retiring with debt increases financial risk, as income options are limited while expenses may increase unexpectedly.
When? baby boomers When people discuss money, the focus is usually on their wealth and the economic adversity that helped them build it. But there’s another side that gets less attention: Many people who have retired, or are entering retirement, have significantly more loan Compared to previous generations.
Although retiring with debt used to be considered reckless, it has now become common.
But that debt can look different in every household, and mortgage, credit card and other balances can make retirement budgeting more complicated once regular pay checks wear off.
why does it matter
Carrying debt until retirement isn’t automatically dangerous, but it can limit your savings as medical costs and other expenses rise. Knowing what baby boomers typically owe can help you put your own debt into context before retirement expenses start rising.
How much debt are baby boomers taking on?
About 69% of boomers held some form of debt in 2022, the latest year covered by the Federal Reserve. Survey of Consumer Finances (SCF). The share was even higher among young boomers: 75% of Americans ages 58 to 66 had taken out a loan, while 62% of those aged 67 to 76 had taken out a loan.
How much they owe varies widely by household. The Fed reports two figures for generation as a whole: MEDIANwhich shows the midpoint in the houses, and Meaningor averages, which can be drawn over much larger scales.
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How much debt do baby boomer families have in total? |
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|---|---|---|---|
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all boomers(born 1946-1964) |
old boomers(born 1946-1955) |
young boomers(born 1956-1964) |
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percentage including loan |
69% |
62% |
75% |
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median |
$62,450 |
$43,000 |
$73,610 |
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Meaning |
$147,122 |
$132,314 |
$158,625 |
The difference between those figures is significant. Baby boomers had an average household debt of $62,450 in 2022, while the average was much higher, $147,122.
The average is generally a better gauge of a typical household because it is less skewed by unusually high debt levels. But even a low average figure can be enough to put a strain on a retiree’s finances, especially when he or she has to compete with housing. Health careAnd increase in everyday costs.
The level of those debts is also much higher than before. According to SCF, the average debt among households headed by people aged 65 to 74 is expected to more than quadruple between 1992 and 2022. In households headed by people aged 75 years and above, it has increased more than seven times.
The Debt That Could Keep Baby Boomers Into Retirement
Housing debt is the largest balance carried by baby boomers, who mostly mortgage but also through loans home equity. In 2022, 38% of this generation had a loan secured by their primary residence, with an average balance of $116,000.
credit card debt It’s as common as mortgage debt among baby boomers. In 2022, 38% carried a credit card balance, with the average balance being $3,000. It may not seem worrisome, but it can escalate rapidly. interest rates Often more than 20%.
Vehicle loans and education loans are also common pressure points. Education loans have the largest average balance outside housing, which may reflect Parent Plus Loan Or graduate loans that were never paid in full.
Why does the impact of debt vary on retirement?
have a problem with debt in retirement The point is that it increases spending at a time when options for increasing income are more limited.
During your working years, pay raises, bonuses, overtime, or side hustles can help absorb additional costs. In retirement, those levers are harder to pull, even though new expenses may emerge.
Unexpected costs like home repairs, car maintenance, etc. medical bills All can put a strain on the retirement budget, especially when loan payments are already taking up monthly cash flow.
This is why financial planners often recommend keeping fixed expenses to a minimum in retirement. The money you save will last as long as you live, and debt payments you can’t easily cut are working against that goal.
What can Boomers do if debt is rising in retirement?
Carrying debt into retirement can become a problem if not managed carefully. These strategies can help keep your budget from falling short:
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Eliminate high-interest debt: Credit card balances are generally the most expensive debt and the most likely to derail your finances. So it makes sense to pay them first – even if it means taking a cut. discretionary spending For a while.
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Consider delaying Social Security. Every year you delay filing your claim full retirement age (66 to 67 for Baby Boomers, depending on your birth year), you’ll increase your benefit by about 8% by age 70. Continuing to work can also give you more time to save and reduce the number of years you need to save.
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Talk to a professional. A Fee-only financial advisors Or a nonprofit credit counselor can help you develop a personalized and manageable debt-reduction strategy.
Debt doesn’t define your finances in retirement, but it does require a plan — especially when every monthly payment affects how long your savings can last.
Read original article Investopedia