Amid economic changes, many retirees are watching their budgets tighten. The number of seniors living in poverty is at a 20-year high, according to data released in 2022 from the U.S. Census Bureau.
This demographic often finds it difficult to keep up with payments. Among retirees, 71% have debt not related to their mortgage with an average balance of $19,888, according to the 2023 State of Retirement Finances report from Clever Real Estate.
Some of the main reasons retirees carry debt include:
— Changing market conditions.
— Depletion of savings.
— Credit card balances.
— Mortgage dilemmas.
— Car payments.
— Student loan burdens.
— Health care costs.
— Family obligations.
— Unexpected events.
[Read: How to Manage Your Debt Before a Recession]
1. Changing Market Conditions
High inflation and rising interest rates are making life more expensive for seniors.
“Market downturns or economic uncertainties can negatively impact retirees’ investment portfolios, reducing their retirement income and forcing them to borrow to meet financial obligations,” says Cameron Burskey, senior partner and managing director at Cornerstone Financial Services in Southfield, Michigan.
Due in big part to these factors, the average retiree has $21,000 less in savings than they did at the beginning of 2022, according to the Clever Real Estate report.
2. Depletion of Savings
In their working years, some employees might have experienced a medical crisis or job loss. They may have drawn from retirement accounts to cope and regroup. Seniors who struggled financially during their careers may have already tapped their 401(k)s and IRAs, shrinking their nest eggs.
3. Credit Card Balances
Overspending before retirement can lead to monthly bills that last for years. If seniors are unable to cover their daily expenses on a fixed income, they might also reach for a card.
“Failure to pay balances in full each month prior to the payment due date can lead to high-interest charges and debt accumulation over time,” says JB Beckett, founder of Beckett Financial Group in West Columbia, South Carolina.
4. Mortgage Dilemmas
After credit card debt, home-related loans account for most of the debt among retirees, according to the Clever Real Estate report.
“Many retirees still have outstanding mortgage balances because they either haven’t paid off their mortgage before retirement or they have refinanced their homes during their working years,” Burskey says.
Home payments can eat away at fixed-income budgets, making it difficult for retirees to pay other bills.
[See: Expenses You Can Eliminate in Retirement.]
5. Car Payments
The third most common form of debt for retirees is car-related, according to Clever Real Estate’s report. It can be tough to continue with car payments after you stop working, especially if your annual income drops. Consider reducing this financial burden by giving up one or more cars.
6. Student Loan Burdens
After school days end, the bills for education can continue for decades.
“Whether it’s from their later-in-life schooling or co-signing student loans for children and grandchildren, student loan debt is a very real burden for many retirees,” says Amy Maliga, a financial educator with Take Charge America, a national nonprofit credit counseling and debt management agency in Phoenix.
“Those carrying student loan debt in retirement should contact their loan servicer (or servicers) to discuss repayment options and possible relief plans including deferment, forbearance and loan forgiveness,” she adds.
7. Health Care Costs
The need for increased medical assistance can lead to higher-than-expected bills in retirement. Even though Medicare is available for those who are 65 and older, it doesn’t cover everything.
“Out-of-pocket expenses, co-payments, deductibles and prescription medications can accumulate, resulting in medical debt,” Beckett says.
[READ: 8 Great Hobbies in Retirement.]
8. Family Obligations
Seniors can feel a strong desire to help others, especially those who are not as well off financially.
“Retirees may find themselves financially supporting their adult children, grandchildren or other family members,” says Pamela Sams, financial advisor at Jackson Sams Wealth Strategies in Herndon, Virginia. “This can be due to various reasons such as assisting with education costs, providing financial aid during tough times or helping with housing expenses.”
Over time, these good intentions can put a strain on fixed incomes.
9. Unexpected Events
Home repairs, extra visits to see the grandchildren and new hobbies can increase monthly expenses. Seniors who don’t have emergency funds in place may use debt to pay off unexpected costs. These loans and interest charges can lead to ongoing financial struggles in retirement.
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Reasons Retirees Carry Debt originally appeared on usnews.com
