Last Updated: October 19, 2009
According to the October 2009 EBRI Notes, both housing and credit card debt have increased considerably for families close to or in retirement. And for some in these age groups, debt levels have risen past the threshold considered problematic. It is, as trends go, a bit disturbing.
Consider this: The proportion of families where the head of the household is age 55 or older with housing debt increased steadily, from 24 percent in 1992 to 40 percent in 2007. And the percentage of families where the head of the household is age 55 or older with credit card debt held steady, at around 31 percent from 1992 to 2001 before increasing to 34 percent in 2004 and 38 percent in 2007.
To be sure, part of this is related to the economic trend. But trend or not, financial planners say it's important to develop a debt-free mindset in the months and years ahead, especially if you are close to retirement. "Much of [the increase in debt] can be attributed to the thinking that homes will increase in value every year and retirement will somehow take care of itself," said FPA member, Steven W. Medland, CFP®, of TABR Capital Management, LLC.
If you are not yet retired, you need to have a mindset that you will not retire until all of your debt has been retired first. "Many people look at their home as an asset, but it is also a liability that has to be maintained even when your income goes down," said Medland. "The maintenance is a whole lot easier when you're not struggling with a mortgage and consumer debt at the same time."
If you are already retired, Medland said it is much more difficult to pay down your debt. "Having consumer or mortgage debt in retirement can compound the problem, since every dollar that you take out of an IRA, [if you have one], needs to be taxed before paying off the debt," Medland said. "This can cause increased taxes and possibly put a consumer into a higher tax bracket."
If you're retired, you might consider going back to work as a way to pay down your debt. But if you're unable to go back to work, Medland said, "It's time you go on a strict program to reduce spending and chip away at the debt every month until it's gone."