2 Huge Threats to Retirement Security Today

Source: Flickr / 401(k) 2013.

The baby boomer generation is worried about retirement, and with good cause. Not only are they the demographic that has begun aging into that part of life, but they also carry a heavier load of debt than this age group did 10 years ago.

When the folks at Gallup asked boomers if they thought they had "enough money to do everything they want(ed) to do", the respondents who disagreed heartily also expected to delay retirement until age 73. Gallup noted that the financial crisis derailed many boomers who previously planned to retire earlier.

Mortgage debt burdens older boomers
The Consumer Finance Protection Board has released a study of older Americans and retirement security – and it's disconcerting, to say the least.

The CFPB notes that older baby boomers are shouldering more debt than ever as they approach retirement, and a big portion of that burden is mortgage debt. The report shows that mortgage debt had risen 8% between 2001 and 2010 for those aged 65 to 74 years, and 10% for persons aged 75 and older. The rate of homeownership among those over age 65 is 80%, and the median amount of debt held by this age group is now $79,000 -- compared with only $43,400 of similarly aged persons 10 years ago.

What caused this increase in housing debt?

Much of the problem was due to refinancing during the salad days before the housing crisis, as well as putting smaller down payments on purchased homes, which were often bought later in life. Retirees with hefty mortgage debt face substantially higher median monthly housing costs of $1,257, compared to the paltry $434 those without a mortgage spend per month.

Older Americans faced an increased rate of foreclosure during the Great Recession, as well – further eroding their retirement security.

Student loan debt lingers, too
Boomers also have higher levels of student debt than previous generations.

At the end of 2012, those aged 60 and older held $44 billion worth of college loan debt, and younger boomers, then aged 50 to 59, shouldered $112 billion. Together, these two age cohorts hold 17% of all outstanding student debt, as much as those aged 40- 49 years.

Even when older boomers manage to have their student loan slate wiped clean with a disability discharge, they can find themselves in quite another dilemma: owing federal income tax on the forgiven loan amount, which the government treats as income.

Sadly, there doesn't seem to be any actionable remedy for this situation, but younger generations can, at least, learn from their elders' mistakes. Many older Americans did not start saving early for college expenses, and relied heavily on loans, two problems that had added significantly to the current dilemma.

The financial crisis caught many by surprise, of course, forcing them to make choices they might not otherwise have found necessary.

Hopefully, younger Americans have incorporated these lessons into their own long-term planning, and will be able to avoid similar risks to their own retirement security.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2959132, ~/Articles/ArticleHandler.aspx, 8/1/2014 1:59:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement