Aging Americans have a new companion: higher debt
I like to joke about the fact that I have a ten-year-old boy at the age when my mother was not only an empty nester, but also an empty nester with a son-in-law. (That would be my husband.)
What I don’t like to contemplate as much? That I will almost certainly have just finished paying for the college education of the same adorable ten-year-old when the law permits me to claim a monthly Social Security check.
In a society infatuated with youth, the message is that you are only as old as you feel.
What seems to get short shrift is the impact of forever-young finances on middle-aged balance sheets.
“Boomers don’t think they’re going to get old,” says Ann Fishman, the president of Generational Targeted Marketing.
The result? It used to be that households headed by someone over the age of 50 began to deleverage — that is, pay down their debt. Now, we’re seeing an opposite phenomenon: those families instead go further into arrears, acquiring even more debits on the household budget sheet at ages previous generations associated with the early bird special.
According to a recent report by workplace financial advisory service Hello Wallet, the debt load of the average household headed by someone over the age of 50 increased 69 percent over the past two decades, and now claims 22 cents of every dollar earned.
Look at housing. A few decades ago, people entering their fifties and sixties were often approaching the end of their mortgage-paying days, allowing them to either live without a monthly payment or sell up and move to a cheaper locale. Yet according to a survey released earlier this year by Securian Financial Group, not only do almost half of current retirees still owe money on their homes, the number is almost certainly heading higher. Two-thirds of those surveyed said they expected to retire from the workforce before they retire their bank note.
The student loan crisis, most often viewed as a problem for the Millennial generation, is also affecting older age groups. The amount owed on education loans by people over the age of 60 has increased from $11,000 in 2005 to more than $19,000 in 2013. Those between the ages of 50 and 59 with such bills now owe $23,000.
A decent percentage of these bills are almost certainly the result of middle-aged mom and dads co-signing their children’s loans. Granted, it’s not as if there weren’t older parents in the past. But the cost of bringing up baby to the age of 18 has increased by more than 20 percent when measured in constant dollars since the early 1960s.
At the same time, many parents now believe everything from pricey extracurricular activities to substantive assistance with college preparation and tuition bills is all but de rigueur. Suze Orman can go on CNBC every week and beg Americans to prioritize their own savings over the college education of their young adult children, but few are listening. As higher education costs have soared, the family bottom line has taken a beating. A recent survey from Capital One found that Americans identified the need to pay college bills for their children as the number one reason they were having problems saving for retirement.
It’s a double whammy: the middle-aged are also racking up debt to pay for their own further education. The response of numerous personal finance and workplace gurus to our retirement predicament has been to beg people to stay in the workforce as long as possible. Heck, even AARP ran a commercial campaign a few years ago asking the over-50 what they plan to be “when I grow up.” As a result, programs have proliferated that promote the idea that all an unemployed or underemployed fiftysomething needs is a new credential or an encore career and — well, voila — all will be well again.
Unfortunately, the message has yet to reach many of our nation’s employers. It takes the middle-aged longer than their younger compatriots to find a job if they lose one, and, not surprisingly, they are much more likely to be counted among the long-term unemployed, credential or no credential.
At the same time, the prediction business is also a tricky thing. Prior to the Great Recession, teaching was widely promoted as a great second career option, with the Department of Labor projecting a double-digit increase in K-12 positions. The reality? The United States was down 200,000 teaching jobs between 2009 and 2011 and the National Council on Teacher Quality estimates that colleges and universities are churning out more than twice as many teachers as there are available jobs. Instead of sliding gracefully into fulfilling, but less than full-time work — a concept that was promoted prior to the Great Recession — many find themselves stringing together a succession of less than well-paying part time gigs, while facing a bill for a degree that’s been less than helpful.
However, unlike people in their twenties, people in their fifties might not be able to recalibrate. While a small minority say they plan to retire prior to reaching the traditional workforce exist age of 65, most won’t make it. The leading reasons for the change of plans: a health crisis, either personally or that of a loved one.
Yet it’s no secret that the United States is suffering a massive savings deficit for our post-work years. The move away from pensions to defined contribution plans like the 401(k) beginning in the 1980s has left an increasing number of Americans facing a financially perilous old age. The debt build-up makes it worse. Not only does it cut into savings for future living expenses, it increases expenses for the elderly at the same time, leaving them with less to live on.
Encouraging people to believe there will always be another financial day for them isn’t doing anyone any favors, because for many that just isn’t so. If we want to help people get their finances right, it would help to begin admitting that fact.
PHOTO: Barb Wald, 66, plays pickleball in Sun City, Arizona, January 5, 2013. REUTERS/Lucy Nicholson