Generation Y may have the rep for spending right into a bind, but their grandparents and soon-to-be-retired parents are catching up.
More and more, seniors are entering retirement with existing debt or taking on new debt after leaving the work force, experts say.
Today’s seniors, and the first wave of Baby Boomers entering early retirement, are used to carrying debt. They’ve spent years paying installments on revolving bills like credit cards and mortgages.
They’re so used to living well, they seem to keep spending at high levels, even after steady salaries are replaced by retirement income typically 30 percent lower than they brought in as workers.
And an increasing number of retirees, who face rising costs for health care and other services, also are paying bills for their adult children and, in some cases, grandchildren.
Added up, it’s a worrying combination, financial experts and bankruptcy attorneys say. They’re seeing an increasing number of retirees seeking help with heavy-duty debt.
“The problem that the senior citizens have is if they get into a financial pinch, they don’t have the ability to go back in the work force, necessarily, and take care of the problem,” said Neil C. Gordon, a bankruptcy attorney with the Atlanta firm Arnall Golden Gregory.
Gordon, who sits on the board of the National Association of Bankruptcy Trustees, said seniors make up no more than 2 percent of the roughly 1,200 cases he handles a year — but their numbers are growing.
The trend is playing itself out nationwide, attorneys say.
“They’re older, they’re sicker, and they’re further behind,” said Morton A. Faller, who heads the bankruptcy and creditors’ rights group at Shulman, Rogers, Gandal, Pordy & Ecker, a Rockville, Md., law firm. His firm has seen a 20 percent increase in the last few years of older people coming in to seek help with their debts.
“They’re more likely to be on fixed incomes, and their expenses are not staying within the annual growth of their incomes,” Faller said. “They’re going into a hole.”
Most financial experts suggest retirees will need 70 percent to 80 percent of their pre-retirement income to have roughly the same standard of living. That assumes retirees will spend less than they did as workers on things such as clothing and commuting.
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But 39 percent of Baby Boomers in their 50s and 24 percent of Americans in their 60s say they have not calculated how much income they will need in retirement, according to a survey of nearly 4,000 U.S. workers, consumers and human resources executives released this month by insurance company MetLife.
Retiree Wayne Carman of Lawrenceville, Ga., says he’s among those who didn’t fully crunch the numbers.
“I figured we could make it,” said Carman, 68. “But we didn’t do any real long-term cash-flow analysis.”
When he retired early from his job as an executive with railroad giant Norfolk Southern in 1993, Carman looked forward to years of backyard gardening and traveling to far-flung locales with his wife, Judith, who had retired in 1986 from her job at the Federal Trade Commission.
The stock market was just beginning its record bull run, and the funds in his individual retirement account and her brokerage account were on an upward climb.
The couple moved to Lawrenceville from Virginia in 1999 so Judith Carman could be closer to her son and two grandchildren. Two years later she began battling a series of health problems that stymied their travel plans.
Yet they’re still paying down the $20,000 they charged on two credit cards for a lifetime membership to a time-share travel club that would have provided them with accommodations around the world.
They still have 27 years left on their mortgage after refinancing it three years ago, and they are in the last year of paying off their 2001 Buick.
Judith Carman, 79, who needs an oxygen tank to breathe, has been in and out of the hospital for several years, adding to expenses. Although the Carmans have health insurance, her medical bills accounted for nearly 25 percent of their total expenses in 2004.
The Carmans plan to build a $100,000 addition to their house and install a swimming pool so she can exercise. They plan to pay half of that from their retirement savings and finance the rest with a home-equity loan.
The couple spends all but $6,000 of the $75,000 a year they bring in from investments, pensions and retirement accounts.
But Wayne Carmen says they’re not fretting over money.
“It’s not something we talk about,” he said. “I think I would need a greater crisis to pay off the debt, but I don’t worry about the actual debt amount.”
Like the Carmans, more seniors are heading into retirement still paying down a mortgage or taking out home-equity loans. Roughly 30 percent of seniors now owe on their homes, compared with 20 percent in 1980, according to the Demos organization, a New York-based public policy group.
The rising debt comes amid increasing calls in Washington to change Social Security — government-supported income for seniors and the disabled. It also coincides with companies’ move away from guaranteed retirement pensions in favor of less expensive 401(k)s.
“Today’s seniors have a lot of economic pressures on them as they head into retirement, including paying their mortgage,” said Tamara Draut, director of Demos’ economic opportunity program. “People who are in retirement are living in the red, and as the Baby Boomers start to retire, it seems like they’re not on track in terms of retirement savings.”
Even a little crisis can mean financial upheaval for retirees, said Suzanne E. Boas, president of Consumer Credit Counseling Service in Atlanta.
The usual triggers: death of a spouse, unforeseen emergencies, medical problems, and the rising costs of medicine, housing and utilities. Some seniors are financially supporting their adult children or taking care of their grandchildren, Boas said.
Plus, people are living longer, but they’re not squirreling away enough money for the future.
The average American who today is 60 can expect to live to about 82, and the average 70-year-old can expect to live to 85, according to the Atlanta-based Centers for Disease Control and Prevention.
Sixty-one percent of Americans over 50 carried some debt in 2001, compared with 57 percent in 1989, according to the Federal Reserve Board.
The figures are more sobering for seniors 75 and older. In 2001, 29 percent carried debt, compared with 21 percent in 1989.