Retiring With Consumer Debt


Facing a significant amount of consumer debt can be difficult for Oak Park residents of all ages, especially when the debt seems insurmountable. In many cases, consumers who are dealing with debt make the decision to file for bankruptcy in order to get a fresh start. But is such a decision the right one for older adults who are planning to retire soon? According to a recent report from NBC News, retiring with consumer debt can be complicated. In particular, many middle-class earners who are facing medical bills in older adulthood are finding that their options are limited to retiring with debt or filing for personal bankruptcy.
Why are more people retiring with consumer debt, and what solutions might exist?
What Happens When You do Not Reach the Goal of Being Debt Free Before Retirement?
One of the most pressing questions for older adults who are nearing retirement is this: What happens when you do not reach the goal of being debt free before you retire? As the news report explains, most middle-income earners have the goal of being debt free by the point of retirement. During earning years, both parties in a marriage often work full time and contribute to paying off debt. However, many of these couples still end up with debt by the time they reach the age of retirement, from their mid-sixties and up. Some people take early retirements beginning in their 50s.
For a large number of these couples and individuals, consumer debt results from medical bills and medical emergencies. No one plans to require extensive medical treatment for cancer or other illnesses, but as we age, these issues unfortunately become more common. In some situations, people reaching retirement do decide to file for bankruptcy. But for others, it feels more comfortable to continue carrying debt.
More Retirees Have Debt Than Ever Before
One of the reasons that more people continue carrying debt into retirement is that it has become almost commonplace and, according to a research associate at the Employee Benefit Research Institute (EBRI) in Washington, D.C., it “certainly has become more acceptable.” Indeed, according to a study conducted by the EBRI, “American families just reaching retirement or those newly retired are more likely to have debt—and higher levels of debt—than past generations.” In 1998, about 53% of households with adults aged 55 and older went into retirement with debt. By 2016, that number had reached almost 70%.
In addition to medical bills, what is leading more Americans to retire with debt? Some people “upsize” instead of downsizing their homes when their children move out and they retire. As such, mortgage debt increases. To be sure, EBRI cites mortgage debt as being among “the biggest bulk of the debt.” The average debt for families aged 75 and older in 2016 was nearly $37,000.
Eradicating Debt Before Retirement
If you can, you should try to get rid of debt before you retire. There are a number of ways to make this happen. First, families should work to pay off high-interest loans. Second, individuals nearing retirement should consider downsizing and using any profit from a home sale to pay off debt. At the same time, staying in your home but using its equity to pay expenses during retirement can also help. And finally, “more people may need to cut up some credit cards before they retire and re-evaluate whether they should retire in their late 50s or early 60s.”
In the meantime, if you have questions about consumer debt or filing for bankruptcy, an experienced Oak Park bankruptcy lawyer can speak with you today. Contact the Emerson Law Firm for more information.
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