“Savvy Senior”

By JIM MILLER

Dear Savvy Senior,

I thought it was supposed to be children who worried about their parents during retirement. Instead, I’m worrying about my kids!

I’m 78 and my wife is 77. We live comfortably but modestly. When I finally retired 13 years ago, I owned my home and had no debt. Between the company pension, social security and my personal savings and investments, we looked to be fine for many years to come. But when I look at my children, I’m not so sure they’re close to being financially prepared, despite the fact that they talk about early retirement.

The oldest is in her mid-50s now, and the other two are not far behind. I tell them that retirement will come quicker than they think. Yet, none of them seems close to paying off their homes. And I’ve noticed that they’re comfortable with debt that would have kept me up nights pulling my hair out.

I’m just wondering: am I alone out here, or are others noticing the same thing?

Debt-Free Dad

Dear Debt-Free,

The phrase “senior debt” used to conjure up images of college seniors graduating with loans they took out to pay for their education. Not so, today. Your observation is right on the money, so to speak.

All I can tell you is get ready for it to get worse before it gets better because the boomers —let’s hope they’re not busters—will begin retiring soon, and many have lived with debt their entire lives. At the same time, it’s also important to note that much has changed for seniors.

Unsavvy Figures

• Not long ago, CBS News reported that the amount of household debt for people over the age of 65 has tripled in the last decade. Keep in mind, these are not the boomers, so the entire problem can’t be strapped to their backs.

• Other figures indicate that nearly 60 percent of all seniors today carry some debt, compared to 35 percent a decade ago.

• Bankruptcy courts also have seen a sharp increase in the number of seniors declaring bankruptcy. A Harvard study found that they are the fastest growing group of bankruptcy filers. In 2001, the number of seniors declaring personal bankruptcy hit 82,000, up 244 percent from a decade earlier.

What’s Changed?

Many people used to see debt as a disease to be avoided, but the disease is not quite the killer it once was when credit card companies were gouging people with 20 and even 24 percent interest. Rates are at record lows now, which means carrying debt is not the burden it once was. However, it also means we should be paying off debt sooner.

With good credit, people can refinance homes in the five percent range and even buy cars with next to no interest. However, this also means seniors who rely on interest income are getting hammered. It’s a classic Catch 22.

You mentioned your pension, which gave you a guaranteed defined benefit. You knew where you stood and how much you needed to save to make ends meet in retirement. 401(k)s, which many people have today, offer certain advantages, but they have one big drawback: people with them are relying on what are known as defined contribution plans, which don’t guarantee a worker a set income at retirement. A bad choice or a bit of bad luck, like a drastic drop in the stock market, and they could lose a good portion of their retirement.

Last, but certainly not least, we all know what has happened to medical costs. They’re climbing much faster than the rate of inflation and putting seniors on fixed incomes in a tremendous bind. It’s true that previous generations of retirees didn’t have the level of debt that we do today, but healthcare wasn’t as severe a burden back then, either.

Savvy Tips

There are some obvious things people can do to help get out of debt; for instance, shopping around for cheaper credit cards, refinancing their homes if they’re still paying on them, and seeking professional counseling is a very good idea for anyone contemplating retirement.

But two things may ultimately be needed to reverse this trend for our society. We have to get medical costs under control, and, more importantly, we have to learn to live within our means. Which means changing our lifestyles, a much tougher trick.

Resources

• CardWeb.com, Inc. is a comprehensive guide to low-interest, no-fee and secured credit cards. For more information call 800/344-7714 or visit cardweb.com.

• National Foundation for Consumer Credit Counseling offers free or low cost counseling. For more information call 800/388-2227 or visit nfcc.org.

• National Association of Consumer Advocates is a non-profit association of attorneys and consumer advocates committed to representing customers’ interests. For more information call 202/452-1989 or visit naca.net.

If you have any questions, visit savvysenior.org.

—Jim Miller