Reasons for The Increasing Debt of Potential Retirees
Study On Increasing Debt Rate
The findings of recently released research revealed that in 2010, over 70% of the individuals between the ages of 56-61 were in debt. The 2010 statistics was a substantial increase from the 64% statistics recorded in 1994 for people in the same age bracket. The study which was conducted by American Economic Association Papers and Proceedings indicated the likelihood that more Americans would retire in debt than before.
The research took into consideration the debt levels of people between the ages of 56 and 61 across different generations to determine how the financial standing of those who were close to retirement had experienced changes over those years, and the extent to which the changes were affected by the Great Recession. The study revealed that the particular age bracket was specifically taken into consideration as the Average American retires within that age range.
Annamaria Lusardi, the Study’s co-author, stated that the rate at which more people in this generation would have to handle debt at the close and into their retirement was on the rise. Lusardi also noted that the value most of these people carried the period before their retirement had significantly increased from what it used to be.
The Study also showed that people between 56 and 61 in 2010 had an average debt balance of $32,700 which was a substantial increase from the recorded $6.760 in 1992. Lusardi noted that the debt had tended to increase financial frugality. She stated people might be left with no option than to extend their year of retirement, and older families who had more debt to pay off would become exposed to the interest rates that are continually increasing.
The study also revealed that the need to divert a more significant share of resources toward credit card bills and mortgages could pose as difficulties and somewhat impossible for people who were on a fixed income. The Government has also noted that over 40% of unmarried adults got the largest shares of funds from Monthly Social Security Check.
Lusardi stated that the debt increased the chances that a person would file for bankruptcy and referenced a different study which revealed that the rate at which individuals over the age of 65 were filing for bankruptcy was rapidly increasing.
Older Bankruptcy Filers
The study on bankruptcy which Lusardi referred to revealed that bankruptcy filers were getting older. The study indicated that the number of those who filed for bankruptcy at the age of 65 and above rose to 4.5% in 2001 from 2.1% in 1999.
The study stated that the trend continued and by 2007, the percentage had increased from 4.5% to 7.0%. The Institute for Financial Literacy also reported that in a study which took into consideration 24,038 people that applied for credit counseling, 7.8% of them were 65 years and older.
Reasons For Increasing Older Debtors
One of the reasons stated as the cause of the increasing debt of older Americans was the constant increase in housing costs in the 2000s. In addition to the high housing costs, people were also able to secure houses by making lesser down payments and provisions to take out more mortgages were made available even to those with fewer resources and lower credit scores.
Lusardi noted that over time, people bought larger homes that came with higher mortgages and borrowing facilities became more accessible than before. She also added that credit cards and other substitute financial services such as auto title loans, payday loans were also made available to people in more proportion than what existed decades ago. Lusardi noted that credit was being given to people who had little or no idea about fundamental concepts such as the dynamics of compound interest, and the lenders might not be explicit about the terms of the loans.
The totality of these factors led to an increase in the debt people had to pay even when they neared retirement age. As highlighted by Lusardi’s study, the average value of mortgage debt for those falling within the age range of 56 to 61 in 2010 was $73,923. The research also stated that it was a relatively high increase when compared to the recorded $27,493 of people within that age range in debt in 1992.
Lusardi concluded that retirement was now tilting more toward debt management than wealth accumulation.
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