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Thursday, July 3, 2014

Consumer finance report shows seniors are carrying more debt

By Frank McCourt

Senior debt
Retirement money is often a fraction of pre-retirement income
Statistics related to senior citizens have remained static for quite some time.  Four out of five senior citizens own their own homes, elderly drivers still make up around 10% of the motorists on our roadways and 4 out of 5 elderly people will battle some form of chronic illness.  While these facts and statistics remain the same, there is one outlier that is emerging.  Debt.

In a study put out by the Consumer Finance Protection Bureau, indebtedness has been steadily climbing for older Americans.  What is the main culprit? Mortgage debt.  The study shows that the average amount owed by older home owners and retirees almost topples $80,000.

The elderly have also been shown to consistently fall behind on housing costs almost three times as much as those in other demographics.  Falling behind on your mortgage, no matter what age demographic you are in, will consistently result in the same consequence, the risk of foreclosure.  The percentage of elderly who took out a home equity loan has grown by almost 20% in the last 30 years.

To avoid this risk of foreclosure, there are several steps you can take to safeguard against this happening to you or someone you know. The first is a matter of taking out a home equity loan.  While initially appealing,  a home equity loan is essentially taking out a secondary mortgage.  Taxing a mortgage with another 15 to 20 years is an entirely different ball game when you are in your late 60’s.  If you are senior or know of one that is in need of home renovations, you should steer them away from taking out a secondary mortgage and instead explore options like eldercare.gov which provides seniors with financial services for home renovations.

Next, make sure you heavily weigh the repercussions of diving into that second home.  The notion of retiring and immediately looking into purchasing a condo or a time share is quickly becoming antiquated.  Not only do these pose unique insurance risks but the trend in real estate in your area and the area of intended purchase may be vastly different, setting you up for a host of different problems later down the road.

Refinancing can also be an option many of the elderly consider when they start to think of different ways to supplement their monthly retirement benefits.  While this can occasionally be a good idea, it is important to look out for the many pitfalls that can arise when refinancing.  The home equity and modification market is ripe with scams and to the untrained eye an appealing deal that at first glance seems lucrative could be a bit deceptive.  To avoid this, read reviews, inquire with the Better Business Bureau and ask around and see what worked for others.

While home mortgages make up the bulk of these debts, seniors are also taking on more credit card debt than they have in previous decades.  To get some sense of how these debts have grown, the average debt for Americans over the age of 75 in 1989 was unmeasurable.  Compare that to the current numbers that place senior’s measurable credit card debt at around $6,000 and you can begin to see an escalating trend.  Seniors struggling with rising credit card debt should be urged to seek out lower interests rates to evade increasing debts, late fees and other financial repercussions .

At the end of the day many financial experts recommend safely managing your retirement to avoid many of the dangers that can come when funds are spread too thin and poor financial decisions are made.  Bob Curtis, president of PIEtech states the following:

“Everyone approaching or in retirement should have a meaningful retirement goal plan.  It doesn't need to be a complicated, comprehensive plan, but requires more than a calculator. There's just no way to provide competent advice without having a holistic picture of an investor's goal and resources."

About the author: Frank McCourt writes about finance in the modern world, he also reads old literature from the not-so modern world.   In his free time he writes for Senior Care Franchise.

Image: US-PD