One of the challenges for financial planners when dealing with baby boomers approaching their actual (hoped for) retirement dates has to do with helping them tackle their often substantial debt burden. Carrying debts has long been a fact for Americans, as taking out loans to pay for the “finer things” in life has become not only more fashionable, but also a standard practice. Gone are, for example, the days when a significant number of people would expect to cancel their home mortgages before actually retiring; the desire to continue to improve the size and quality of a person’s residence, as well as the temptation to cash in the accumulated wealth to buy this or that, have made retiring mortgages now typical of so many who have their Golden Start year.
It turns out that it’s not just mortgages, car loans and credit card credits that retirees consider appropriate to keep as part of their financial profiles; also add education-related debt to the list. That’s right, I said educational debt. However, it is not what you think. I’m not talking about Boomers who are still paying off school loans they took out as students, or even loans they took out more recently when they decided to go back to college as working adults. The education-related debt affecting a growing number of retirees and near-retirees relates to the loans they have taken out to help children and grandchildren with the costs of their educations.
According to the LIMRA Secure Retirement Instituteadults in the 65 to 74 age group currently wear nearly six times more educational debt than 25 years ago. Education-related debt has risen significantly in recent decades and now represents about 15 percent of total retirement debt that is retiring. For so-called retirees in the 55 to 64 age range, the picture is uglier, now education debts represent 30 percentof the total installment debts they carry around. The weight of these obligations will only exacerbate the financial difficulties of retirees, which already create a record amount of other debt in the fixed income country.
The fact is, as financial conditions remain so challenging for so many in America, more people will have to rethink how they hope they can help younger family members pay for the costs associated with higher education. On the one hand, while it is nice that many older Americans are very willing to take on debts of this kind for the benefit of children and grandchildren, the reality is that this is not a sustainable financial profile for retirement. The answer may be, in part, that “seasoned” family members engage in wider discussions with children on how to cover education-related expenditure. As younger family members are approaching college age, it may be appropriate for grandparents to be more powerful in proposing options such as attending the first two years of post-secondary schooling at public community colleges, or recommending that young people work while only slightly lessons at the same time. In situations like this, where students don’t face a huge cost to go to school, parents and grandparents can contribute to the education costs, if they want to, that’s just that … single contributions, minus ongoing obligations. Regardless, this growing debt burden for retirees cannot continue, and therefore a smarter approach to spending… by everyone in a family… will be needed to save all members from serious financial difficulties.
The information in this document is for general information purposes only. Bob Yetman disclaims responsibility for any liability or loss resulting from the use or application, directly or indirectly, of the information presented herein. Nothing in this article should be construed as a request or recommendation to enter into a financial transaction. You should seek advice from a qualified professional before making changes to your personal financial profile.