Don’t Tarnish Your Golden Age with Debt

What is considered the retirement ideal?

Living your best “golden years” is perceived as being completely free of work, and having the money and health to do exactly what you want exactly when you want.

That can mean being on-the-go traveling the world, or mirroring my parents, happily ensconced in The Villages in Florida, acting like kids at Disney World, staying up late watching movies, and scheduling tee times for noon!

But if you’re worried about how the gap between your retirement dreams and your reality has widened, you’re not alone. Senior debt has been increasing over the past two decades.

We’ll look into the reasons why, and we’ll point out the signs of financial decline so you can catch it early. Then we’ll share ways you can avoid a crippling amount of debt as well as get back on track, including getting a car insurance quote without a credit check.

Seniors and Debt

Older adults have more debt than prior generations. In fact, a large debt burden is the new normal. A Congressional Research Service report in 2019 found the percentage of elderly households with any type of debt increased from 38% in 1989 to 61% in 2016. The amount of debt owed jumped from approximately $7,500 to over $31,000.

Let’s look at the major factors behind these alarming statistics, which previous generations didn’t have to contend with. 

Causes of Senior Debt

Increasing costs combined with diminishing liquidity have given rise to a host of reasons that debt for older adults has become such a problem:

Medical care: Costs have soared just as employers have been trying to cut their costs by shifting toward high-deductible health insurance plans.

Corporate culture: There has been a shift from defined benefits retirement plans (pensions) to defined contribution plans (401k).

Student loans: Skyrocketing education costs have led to older Americans co-signing loans to help their kids and grandkids attend college. And many of them didn’t fully realize that when the borrower struggled to make payments, they were responsible for paying the loan.

Auto loans: Car prices have risen and buying them has been made more appealing with more affordable auto loan rates having longer terms. But while you have lower monthly payments, you’re paying considerably more over the life of your loan.

Mortgages: The recent series of economic downturns, changes in income, and the factors above have contributed to older Americans holding on to their mortgages longer. But some seniors also continue to carry mortgage debt based on the advice of financial planners, for the tax incentives, and for the opportunity to get a home equity line of credit.

Credit card debt: With the cost of living rising at a faster rate than income, compounded by soaring costs they’re dealing with in other areas, seniors have mirrored younger generations by turning to credit cards to make ends meet.

Pandemic: There has been a 50% increase in the number of baby boomers who’ve retired since COVID-19 gripped the globe. Job loss, wage reduction, illness, and the discouraging job-search process for older workers are factors that have caused many near-retirees to prematurely retire.

Signs of Financial Trouble

If you want to stop the negative effects of having debt as early as possible, it helps to know the signs.

It’s time to take action on making some major changes if:

  • You’re only making minimum monthly payments on your credit cards.
  • You’ve started using one credit card to pay off another credit card.
  • You’re putting off needed car repairs, home maintenance, and medical appointments.
  • Your savings account balance is dropping.
  • Your emergency savings fund is shrinking.
  • You dread getting the mail because you’ve started getting collection notices and past-due bills.
  • You’re refusing to answer calls you suspect are from creditors.

How Seniors Can Avoid and Rebound From Debt

Now that we’ve identified problem areas, let’s review the large number of solutions to deal with or settle debt and avoid adding to it.

Ask for Help With Finances

If working on your finances to avoid debt or to dig yourself out of debt feels too overwhelming a task to take on yourself, don’t be afraid to lean on others.

Asking for help isn’t a sign of weakness. It’s actually a sign that you’re strong enough to admit you need assistance and resourceful enough to carry through on it. No one has all of the answers, and collaboration can lead to a better chance of success.

If you’re not comfortable sharing financial issues with family, then seek a financial professional. They can provide you with the starting tools you need to handle your debts, and their objectivity and experience will guide you to debt-reducing options that will work the best for your lifestyle and goals.

Focus on Specific Types of Debt

Prioritizing your debts will help reduce your overall debt burden. Paying off most personal debt loans can be done with hard work and determination.

Your types of debt matter. Mortgages, auto loans, and student loans tend to be lower interest, so they’re of a lower concern than other types of debt.

The debt you want to prioritize is credit lines, which carry significantly higher interest rates.

If credit card debt is what’s eating most of your cash, call each of your credit card companies — starting with the card that has the highest interest rate — and negotiate a lower rate. This way you’ll be paying more on the principal.

If you have several credit cards, look into refinancing, either to a low-interest credit card or through a personal loan.

Other ways to help pay down debt include selling your home and downsizing to a smaller home, selling other assets, and generating passive income. You can also take advantage of multifamily bridge loans to efficiently manage your debts.

Prepare for Retirement

Approaching your golden years with your eyes wide open will help keep them golden. Having a preparation checklist for retirement will lessen the chance of financial surprises. 

It’s never too early to plan for your retirement. Some tips to keep in mind:

  • Have 80% of your annual salary for your retirement per year.
  • Aim to save 15% of your salary for retirement. If that’s not doable, start with a percentage you can manage, then increase that by 1% every year until you reach 15%.
  • Take full advantage of your 401(k) by contributing the maximum percentage allowed or at least the percentage of any employer-matched contribution.
  • Look into refinancing your mortgage as a way to ease the burden on your retirement nest egg, help pay for rising medical costs, or take mortgage payments off of your retirement budget sooner.
  • Create a budget focused on living below your means and stick to it.
  • Maintain a good credit score as well as a debt-to-income ratio of 30% or less to secure better interest rates and pay less on interest long term.

Tips for Reducing Expenses

With many Americans having a hard time living within their means, how do you live below your means?

Here are a few cost-cutting measures you can pursue:

Create a Budget and Stick to it

Just as keeping track of when you exercise and what you eat can help you achieve fitness and weight goals, keeping close tabs on money coming in and how it’s going out can help you achieve your financial goals.

You’ll most likely be shocked by the amount of your discretionary outlays. This will help you make decisions on what you can curtail or reduce altogether, such as little-used subscriptions and memberships.

Comparison Shop for Insurance

You can save hundreds of dollars on your auto and home insurance by checking out free online quotes from other insurers. I did it recently and I’m saving $700 a year.

If you find your debt has impacted your credit score, your auto insurance rate won’t be affected if you live in California, Hawaii, Massachusetts, or Washington, which do not allow credit score as a factor in determining your rate.

For those in other states, you can offset the rise in a premium due to a low credit score by not only comparison shopping, but also opting for pay-per-mile insurance, especially if you’re a good driver who doesn’t drive a lot, or taking advantage of senior discounts, as well as dozens of other discounts.

The best auto insurance for seniors can be found at The Hartford/AARP, Geico, and State Farm. And the best home insurance companies for seniors are The Hartford/AARP, Allstate, and Amica Mutual. 

Research and Negotiate for All Your Spending

Don’t stop with credit cards and insurance. Research all of the companies providing you with services for specials and discounts, so you’re armed with information when you call to negotiate a lower rate.

I saved 66% on my SiriusXM bill by noting my reduction in driving and then receiving a loyalty discount and a multi-car discount. And I’m saving $40 a month on my T-Mobile bill by pursuing their 55 plan.  

While the ideal retirement of having all your debt in the rear-view mirror doesn’t work out that way for most of us, we hope we’ve given you enough actionable tips that you can at least better enjoy your ride into retirement thanks to a lighter debt load.


About The Author: Karen Condor writes and researches for the auto insurance comparison site, She is a finance and insurance expert who enjoys helping people of all ages plan ahead for their retirement.