Average Retirement Debt: Do You Owe Too Much? (2024)

One of the greatest threats to retirement today may not be saving too little, but owing too much.

According to the Federal Reserve Bank, Boomers (Americans born between 1946 and 1964), are carrying ballooning amounts of debt into retirement.Average Retirement Debt: Do You Owe Too Much? (1)Will your debt take a big bite our of your retirement?

For many people, that debt is emerging as a serious threat to a successful future. Debt can be a constant source of stress and affect retirees’ ability to keep their homes, pay necessary living expenses, and even be accepted into independent- or assisted-living facilities.

Older Americans Are Seeing Debt Levels Rise

The Federal Reserve Bank reports that the total debt burden in various age brackets has increased dramatically for the time period between 1999 and 2019:

  • Those in their 60s have debt levels that have risen by 471%
  • And, the total debt burden for people over 70 has gone up by 543%
  • Other age groups have also seen large increases, but not as pronounced as those in these older age brackets

Average Retirement Debt: The Numbers

According to an earlier survey from the Boston College Center for Retirement Research, 8 in 10 middle-income Boomers currently have some debt. Three in 10 devote more than 40% of their monthly income to debt and a quarter have a mortgage with more than 20 years remaining on it. More than half say they intend to enter retirement debt free, but only one-quarter of retired Boomers actually are debt free.

The Federal Reserve data suggests that these are the average debt levels by age:

  • $9,593 for ages 18-23
  • $78,396 for those 24-39
  • $135,841 for 40-55
  • $96,984 for 56-74
  • $40,925 for those 75 and older

Houses, Education and Doctor Bills… Oh My!

While credit cards are problematic, homes, education and medical bills are the primary sources of debt in retirement.

  • Rising home prices and the longer-term mortgages that result often mean seniors must continue making monthly mortgage payments well into their retirement years.
  • While we often equate student loan debt with Millennials, people over the age of 50 are the fastest-growing group with student loan debt, according to a report from the Government Accountability Office.
  • Medical debt is another problem for retirees. While most retirees are covered by Medicare, Medicare coverage is limited. Not every procedure is covered, so the average retiree spends thousands of dollars on medical bills over the course of their retirement years.

The breakdown of the debt for people between 40 and 69 is roughly as follows. About:

  • $5,000 in auto loans
  • $4,000 in credit dards
  • $2,000 in HELOC
  • $47,000 in mortgage
  • $4,000 in student loans
  • And, $2,000 in other

Should You Be Terrified of Debt?

duunnn dunnn… duuuunnnn duun… duuunnnnnnnn dun dun dun dun dun dun dun… Too much debt really should give you that terrified feeling that there might be a great white shark lurking beneath you.

Servicing debt payments on a fixed income can be a tremendous burden for retirees who cannot generate income from other sources to pay off that debt. It can be very hard to get ahead or even live comfortably while carrying large debt balances. A good percentage of your income could be diverted to paying interest and principal payments instead of shoring up retirement account balances or paying living expenses, such as food, housing, and medical bills.

Carrying large amounts of debt also has a detrimental effect on credit scores. Credit checks are typically a part of the application process for acceptance into independent- and assisted-living facilities. Even if you are able to get through the application process, debt payments could make it difficult to afford to stay there, as adult care facilities cost tens of thousands of dollars per year, depending on the level of care needed.

13 Tips for Managing Debt in Retirement

If you are at or near retirement, there are steps you can take to make sure that debt doesn’t destroy your retirement plans.

Below are 13 tips for making sure debt doesn’t not ruin your retirement. If you need some motivation, use the NewRetirement retirement planner to see your future finances with and without debt. After entering some initial information, you will get a complete analysis of your situation. Next you can try out different scenarios and immediately see the impact of each change. See what happens if you accelerate your debt payments, work longer, reduce interest rates or try any of the other options. You can achieve retirement security.

  1. Stop: Stop adding to your debt balances. Remove credit cards from your wallet to reduce the temptation to use them on impulse purchases or things you can’t really afford.
  2. Prioritize: Prioritize paying off high-interest credit card debt.
  3. Don’t Worry: Worry a little less about your mortgage. While entering retirement mortgage-free is a dream for many people, it’s likely that the interest rate on your mortgage is a quarter of the rate charged by your credit card company, and credit card interest is not tax-deductible.
  4. Refinance: Because your mortgage interest rate is likely lower than what you are paying on other loans, you might consider cash out refinancing on your mortgage. You might increase the size of your mortgage, but if you use the cash to pay off credit cards or other expensive debt, you’ll come out ahead.
  5. Transfer: Consider taking advantage of low introductory credit card balance transfers. You may be able to transfer some higher-rate balances to a new card offering zero percent interest for a year. If you do, come up with a plan to pay off the balance during the interest-free period and make sure you don’t compound your problems by running up new charges on the old account.
  6. Work Longer: Consider working longer or getting a part-time job to help pay down debt. Every year that you continue to work is one more year that your retirement nest egg can grow – and more income that can be used to pay down debt balances.
  7. Pay: Pay your bills on time. Late payments will result in fees that will further increase your debt balances and hurt your credit score. Talk to your creditors about hardship or forbearance options if you think you may fall behind.
  8. Ask For a Payment Plan: Don’t charge medical expenses to credit cards unless you have a plan for paying it off. If you owe medical providers, talk to them about assistance plans. Avoid in-office financing offered by doctors, dentists and other medical providers as it can often be more expensive than a personal loan.
  9. Start an Emergency Fund: Work on building an emergency fund. While it may be difficult to save for a rainy day while paying down debt, having an emergency fund can help you avoid tapping credit cards when unexpected expenses come up, such as home or car repairs.
  10. Reduce Expenses: Work on reducing your living expenses. Budget conservatively to live within your means. That may mean getting rid of pricey cable television packages, dining out less, and even downsizing your home or moving to a less expensive area.
  11. Say No: Think twice about co-signing loans or going into debt to help adult children or grandchildren. While you may feel good about helping in the short-term, if you put yourself in a difficult financial situation, you could end up becoming a financial burden on your family members later.
  12. Get Help: If you are currently struggling to meet your obligations, contact a non-profit credit counseling service. A reputable credit counseling organization can help you develop a personalized plan to deal with your financial problems.
  13. Retain Savings: Don’t try to reduce debt by cashing out 401(k)s or other retirement accounts. If you are under age 59½, you’ll be charged an additional 10% penalty in addition to income taxes for any withdrawals from 401(k) and traditional IRA accounts. Plus, taking out large distributions from a qualified plan could push you into a higher tax bracket.

For many Americans, carrying debt into retirement is unavoidable, but the earlier you develop a plan to deal with it, the easier it will be to tackle – and the better chance you’ll have of being able to afford the retirement you’ve always dreamed of.

Use the Retirement Planner to see what happens if you improve your debt situation! Forbes Magazine calls this tool “a new approach to retirement planning” and it was named a best retirement calculator by the American Association of Individual Investors (AAII), CanIRetireYet and many others.

Average Retirement Debt: Do You Owe Too Much? (2)

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Average Retirement Debt: Do You Owe Too Much? (2024)

FAQs

Average Retirement Debt: Do You Owe Too Much? ›

Average Retirement Debt: The Numbers

How much debt does the average retired person have? ›

Unfortunately, it's a strain many people risk dealing with. A recent Nationwide study finds that Americans of retirement age have an average of $70,000 in debt. And that's not the most comforting piece of data. So if you're nearing retirement with debt, take these key steps to improve your situation.

What amount of debt is too much? ›

Most lenders say a DTI of 36% is acceptable, but they want to lend you money, so they're willing to cut some slack. Many financial advisors say a DTI higher than 35% means you have too much debt. Others stretch the boundaries up to the 49% mark.

How much debt does the average 70 year old have? ›

Average total debt by age and generation
GenerationAgesCredit Karma members' average total debt
Millennial (born 1981–1996)27–42$48,611
Gen X (born 1965–1980)43–58$61,036
Baby boomer (born 1946–1964)59–77$52,401
Silent (born 1928–1945)78–95$41,077
1 more row
Apr 29, 2024

Are most retirees debt free? ›

In a recent SmartAsset study, it was uncovered that even the ultra wealthy carry debt. But the scope of debt among retiree households is real and growing. The number of retired households carrying debt of some sort has approximately doubled in the last 30 years. Most of this growth has come from new mortgages.

Can I retire with 500k and no debt? ›

The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.

At what age do most people pay off their house? ›

But with nearly two-thirds of retirement-age Americans having paid off their mortgages, it means that the average age they have gotten rid of that debt is likely in their early 60s. Stats from 538.com, for example, suggest the age is around 63.

What is an unhealthy amount of debt? ›

Key takeaways

Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.

What is considered a high level of debt? ›

By calculating the ratio between your income and your debts, you get your “debt ratio.” This is something the banks are very interested in. A debt ratio below 30% is excellent. Above 40% is critical. Lenders could deny you a loan.

What is crippling debt? ›

crippling debt n

figurative (owing too much money)

How much money do most people retire with? ›

The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances.

Why should seniors not worry about old debts? ›

There are state laws that protect IRA benefits and independent retirement accounts. So, seniors' income is protected by various laws, and if they don't pay their debt, or if they're unable to pay their debt, even if they're sued, it can't be garnished or taken from them.

How many Americans are debt free? ›

What percentage of America is debt-free? According to that same Experian study, less than 25% of American households are debt-free. This figure may be small for a variety of reasons, particularly because of the high number of home mortgages and auto loans many Americans have.

How many people have $1,000,000 in retirement savings? ›

In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.

Do most retirees run out of money? ›

The average retiree doesn't have anywhere close to $1 million saved. Most retirees have just $142,500 in savings, according to Clever's study. Almost half (46%) of retirees are unprepared for the possibility of running out of retirement savings.

What are the three types of debt you never want to have? ›

This could be in the form of a payday loan, credit card, personal loan, etc. In these situations, you spend most of your time, money, and effort paying off the interest and little or no money is going to the principle of the loan.

What is the average amount of money a retired person has? ›

The median income for Americans 65 and older is $50,290. The mean (average) is $75,020. Average annual expenditures for Americans 65 and older are $57,818. The average Social Security retirement benefit check is $1,907 as of January 2024.

Can I retire with 400k and no debt? ›

You can retire a little early on $400,000, but it won't be easy. If you have the option of working and saving for a few more years, it will give you a significantly more comfortable retirement.

What is the average mortgage for retirees? ›

Buying a house has also become increasingly expensive, and the size of the typical retired household's mortgage has more than doubled compared with their parents, to about $108,500 in inflation-adjusted dollars. Retired Black and Hispanic homeowners have even less to fall back on.

What is the debt ratio for retirees? ›

Calculate your debt-to-income ratio. Divide your monthly debt payments by your monthly gross income (before taxes) that you expect to receive in retirement. What is this ratio? If your debt-to-income ratio is higher than 43%, this can be a sign that you are overextended.

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