New York Estate Planning & Elder Law Blog
Debt no matter the age of the debtor is a difficult load to carry. The opportunity to pay back debts diminishes with age because one’s income potential is decreased due to unemployment and any physical limitation to working. The fixed income that Social Security, pension, and retirement savings provide ideally should cover living expenses – such as housing, clothing, food, and medical care and expenses. Households that must stretch those dollars out to pay back debt are very vulnerable.
Senior above 60 hold $2.16 trillion in debt
Senior household debt is on the rise, contributing to a spike in senior bankruptcy filings throughout the country. According to the Federal Reserve, during the first quarter of 2019, Americans in their 60s held $2.16 trillion in debt. During the economic downturn of 2008, seniors in their 60s held $1.47 trillion in debt. For individuals in households with seniors who are 70 and older, the household debt is double what it was in 2008.
Mortgage debt continues to be high
The single highest debt per house is mortgage debt. Across all age groups, mortgage debt is high with little relief in sight, and notably is carried by people in their 40s and higher. For individuals in their 50s and 60s, the highest mortgage debt is linked to their home equity lines of credit, popularly referred to as HELOCs.
A HELOC is often times, a second mortgage on real property. HELOCs are a loan based on the home’s current value. HELOC loans are different than reverse mortgages. Reverse mortgages, a financial planning device many seniors use to remain in their home longer, does not usually involve a monthly payment. Rather than at the time of the homeowner’s death, before the property is sold or disposed of by will, the reverse mortgage must be paid. Although it is household debt. It is not the type of debt ballooning out of control.
Student loan debt
Seniors over 60 carry less student loan debt than borrowers in their 20s and 30s. Despite the lower number a fifth of household debt for people in their 50s is student loan debt. Student debt, unlike other consumer debt, is much harder to discharge in bankruptcy. Like unpaid child support and federal and state taxes the federal government will collect those debts even if they take a share of any Social Security benefit.
Getting ahead of debt obligations
It is very hard to pay back a debt once you retire. Limited employment opportunities and a fixed income make it almost impossible to make a real dent in debt leading into old age. In a perfect world any debt should be paid off prior to retiring, so that any fixed income received can carry living expenses – like food, shelter, and medical care and treatment. Paying off the home, downsizing to a smaller home with fewer operating costs, refraining from signing on to any loans for children. Quick money schemes are short-term patches that can rapidly spiral out of control. It is best to speak with a financial planner or a local debt counseling agency.