WSJ: Older Americans Drowning in Debt, Delaying Retirement

Even though there’s a large wave of Americans reaching retirement age, many of them won’t be able to stop working because they are in so much debt, reports a Wall Street Journal article.

A June 2011 Gallup poll revealed lack of retirement funds as Americans’ biggest financial worry, with 66% moderately or very worried about not having enough money for retirement, and a combined 60% worrying about rent/mortgage costs and being able to make minimum payments on credit cards.

While all kinds of debt are posing problems for people, including auto and credit card debt, mortgages are the “big problem,” as 39% of households with heads aged 60 through 64 had primary mortgages in 2010, and 20% had secondary mortgages, including home-equity lines, according to research group Strategic Business Insights’ MacroMonitor.

Debt levels are rising, too; of households with heads aged 62 through 69 and with mortgages, the median amount of mortgage debt hit $71,000 in 2007, five times the 1987 inflation-adjusted median, says WSJ, citing a study by William Apgar, then at Harvard’s Joint Center for Housing Studies.

Although people have tried to reduce debt since the financial crisis, says WSJ, they’ve had limited success, as data shows Americans owe nearly double what they owed in 1999, despite an approximately 15% decrease from 2007’s debt levels.

Older Americans are struggling to dig out of debt, and the housing market crash hasn’t helped.

“Relative to the value of their homes, the amount of indebtedness if anything has gone up because house prices have fallen faster than mortgages have been reduced,” Christopher Herbert, director of research at Harvard’s Joint Center for Housing Studies, said in the WSJ article.

In addition to being in debt, says WSJ, older Americans aren’t saving enough, either, as Fidelity Investments, one of the largest managers of 401(k) retirement accounts, says participants between the ages of 55 to 60 contributed a median 8% of salary in the first quarter of the year, down from 10% during the same period in 2006. Some completely cut out contributions, and advisors say even the 8% level is below the double-digit contribution rate that’s recommended for older workers.

The typical American household nearing retirement with a 401(k) retirement account has less than one-quarter of what it needs in that account to maintain its standard of living in retirement, a previous WSJ article revealed. Further, 80% of households with heads in their early 60s did not have enough savings in 2008 to pay off debts without tapping into their retirement accounts, WSJ reports, citing Boston College economist Anthony Webb.

The debt and lack of savings have forced Americans to shift their retirement expectations, and a Gallup poll from April of 2011 shows that for the first time, a higher percentage of people, at 34%, said they don’t expect to retire until after age 65, than those who think they’ll retire before that age, at 29%.

Higher debt levels among those aged 62 and older, especially when it’s mortgage-related, will likely have an impact on the volume of reverse mortgage endorsements, a National Mortgage News article reported in June 2011.

Read the full Wall Street Journal article here.

Written by Alyssa Gerace

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