Over the last five decades, many characteristics have been used to describe Baby Boomers, those born between 1946-1964. The youngest Boomers are now in their mid-fifties, the oldest in their seventies. And one thing that is a common thread among many of them, in Ohio and across the country, is that they still have significant debt.
A recent Pew Charitable Trusts report shows that eight out of ten Boomers have some type of debt. Of those, nearly half still owe on a mortgage. Perhaps more surprising than that statistic, however, is that members of the generation before the Boomers, born between 1928 and 1945, also still have mortgage debt. Almost one-third of those, currently in their seventies through nineties, still owe an average of $76,000 on a mortgage.
Many of the latter group, known as the Silent Generation, may have missed the window of opportunity to pay off their debt before retirement age, but some Boomers may still have that ability and improve their financial picture in retirement. But what is the best way to do that?
First, let’s look at the breakdown of common debt among these two groups. Their debt is not dissimilar to younger generations: mortgages, cars and credit cards. Amazingly, some of these older Americans in their fifties through nineties still have student loan debt: thirteen percent of the Boomers still owe an average of $19,000. Of the older group, three percent still have an average of about $10,000 in student loan debt.
Since many in these age groups may have retirement accounts such as 401(k)s and IRAs, they may look to those funds to borrow money to pay down their debt. But financial advisors strongly oppose this strategy and suggest that even bankruptcy may be a better option for three reasons: (1) the obvious is that tapping into that money at such a late stage of life reduces your savings for other needs in later life; (2) borrowing money from those accounts before age 59 1/2 has significant tax consequences; and (3) the money that is in those accounts is often protected from creditors, including those to be paid out of a bankruptcy plan.
Before taking any of these other steps, think about talking with a bankruptcy attorney to find out if you have options that better meet your long-term goals. Reducing or eliminating debt could help you have a more comfortable retirement.
Source: USA Today, “How Boomers loaded with debt can dig out,” Robert Powell, Aug. 23, 2015