By Pam Villarreal
Filed under Retirement Planning
on November 14, 2008 with 1 comment
Decades ago, it was assumed that households approaching retirement did so with little or no debt. By the time the AARP membership cards began arriving in the mail, the mortgage was paid off (or very close to it), the kids had grown up, attended college and moved out, and there were no more child rearing expenses.
But that is no longer the case. Demographic and social trends, such as the fact that many adults marry and start families later than they did in previous decades, means that many households may still be putting their kids through college or paying down their mortgages during a time when they would normally be socking away savings for retirement. Certainly, job security isn't what it used to be. Moreover, rising housing prices and adjustable rate mortgages may explain some of the debt carryover.
But families also demand larger houses, which may send pre-retirees into their golden years amassed with mortgage debt. In 1950, the average household had 292 square feet or house per resident; by 2006 the number had quadrupled to more than 900 square feet per resident.
These trends, along with the free and easy availability of credit may be hurting families who are soon planning for retirement or are already there. Data from the 2004 Consumer Expenditure Survey reveals:
- Among pre-retirement adults ages 55 to 64, more than three-quarters (76.3 percent) had some type of debt, be it mortgage or other residential property, credit card debt, lines of credit or installment loans – up from 70.8 percent in 1989.
- Among seniors ages 65 to 74, nearly 59 percent have debt, compared to nearly 50 percent in 1989.
- However, among seniors ages 75 and over, 40.3 percent have debt, almost double the percentage of 1989!
More recently, a how to get an annulment
pdf”>study released by the AARP Public Policy Institute found that Americans age 50 and over have been significantly affected by the current mortgage crisis. For example:
- Americans age 50 and over account for about 28 percent of all foreclosures and delinquencies in the current crisis.
- For all households with loan balances that were greater than their home value (a loan-to-value ratio of more than 100 percent), the foreclosure rate was double the national average among the 50-and-older population.
Finally, the study revealed that 53 percent of all homeowners age 50 and over carried a mortgage, compared to just 34 percent two decades ago. But according to the U.S. Census, the home ownership rate among those 55 and over has remained fairly constant over the past 25 years. Thus, while the ownership rate has not increased dramatically, the rate of currently-held mortgages among this age group has. What gives?
I don't have an immediate answer other than my recollection of how things were when I grew up. As a typical family of four, we lived in a 1,700 square foot house in a freshly built suburban neighborhood in a good school system. Back in the 1960s and 70s, this was considered a quite comfortable standard of living for four people. Dad took out a loan for our house, but he saw to it that it was paid back as soon as possible. The only “luxury” I recall was a Buick Electra my father bought in 1972. (This was at a time when the big technological advancement in vehicles was *gasp* power windows…)
This is not to say we would be better off living in huts and taking a vow of poverty. But while we are talking about the debts of the banking industry, and how they got where they are today, it may not be a bad idea to look at consumer debt in terms of retirement goals, and why we have become such a nation of debtors