January 29, 2020 / 4:38 PM / 22 days ago

Seniors deal with the harsh reality of debt

NEW YORK(Reuters) - Allen Lomax knows how retirement is supposed to go: By your golden years, you should have paid off your house, built up a big pot of savings, and be able to face the years ahead without fear.

A computer chip is seen on a newly-issued credit card in this photo illustration taken in Encinitas, California September 28, 2015. REUTERS/Mike Blake

The future is not quite shaping up like that for him.

Decades ago, the 69-year-old from Sylva, North Carolina took out about $130,000 in federal loans for grad school. His hopes of eventually wiping that bill clean were dashed when he lost his well-paying job in his late 50s; the debt ballooned to $170,000, and stayed with him even after he declared bankruptcy.

Now semi-retired and on Social Security, “there’s no way that money will be ever be repaid,” Lomax said.

Lomax is hardly alone in his plight of being past 50 and in a deep financial hole.

The median debt for older Americans shot up 400% between 1989 and 2016, according to the Federal Reserve. But you do not often hear about it, perhaps because of emotional factors like shame and embarrassment.

Paying off debt is a financial priority for 4 out of 10 retirees, according to a survey by the Transamerica Center for Retirement Studies. That includes 29% grappling with credit-card debt, 17% still paying off a mortgage, 11% dealing with other consumer debt like medical bills or student loans, and some coping with a combination.

“There has been a steady rise in the ratio of debt-to-income, indicating that older households are becoming more vulnerable to income shocks later in life,” said Olivia Mitchell, a professor at The Wharton School of the University of Pennsylvania and executive director at the Pension Research Council.

Mitchell cited a few factors that were exacerbating the problem, and one is the run-up in housing prices in recent decades, which has made it more challenging to secure affordable mortgages.

Medical expenses are another culprit.

Financial planner Jennifer Weber of Lake Success, New York cites a client who endured a back injury and multiple surgeries in his late 50s, saddling him with bills and forcing him to cut back on his work. Despite having disability insurance, he still ended up $100,000 in debt as retirement loomed.

And a final, surprising debt factor for this advanced age group: student loans. As of 2018, Americans over 50 owed $260 billion in student loans, according to the Federal Reserve.

Since this type of debt typically cannot be discharged in bankruptcy, it can easily haunt you for a very long time – just as it is doing with Allen Lomax.

A WAY OUT

The best advice is one that most will not want to hear: Work longer. But it is inevitable for many.

Once you call it a day on your career, you have to deal with remaining debt by drawing down your savings, making it more likely the money will eventually run out.

An added bonus of working a few more years is that the longer you delay taking Social Security, the higher your monthly payout will be.

Perhaps the biggest enemy of a secure financial future is darkness and secrecy. When it comes to debt, you cannot address what you do not confront, or admit to a spouse or life partner.

“We had a client whose husband racked up about $50,000 in credit-card debt without the wife’s knowledge, five years before they were ready to retire,” said Tess Zigo, a financial planner in Lisle, Illinois. “We discussed the different options like 401(k) loans, and they ended up working with a debt consolidation company to lower their monthly payments.”

As for Allen Lomax, he does what he can. He works as an adjunct professor, raises awareness about the debt issue through organizations like Student Loan Justice, and is grateful that income-based repayment plans have prevented his situation from getting even graver.

Also, he will not pass on his debts to his heirs, because any remaining balance will get discharged upon his death.

“It could have been worse if I had not stayed on top of it, and let it default altogether,” Lomax said. “I try to keep it out of my mind, but it constantly hangs over my head. The only advice I have for others is ‘stay out of debt, and don’t take out student loans.’”

Editing by Beth Pinsker and Bernadette Baum

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