The financial problems of senior citizens around the world persist, with the aging population remaining among the poorest demographic in many countries. In the United States, the plight of retirees in debt is no different, characterized by surging loans, decreasing assets and day-to-day budgeting problems. Money woes among the elderly affect not only their physical and mental health, but also put a strain to their relationships brought about by blames and regrets over bad decisions and actions of the past.
According to the research non-profit group American Progress, about 3.4 million seniors age 65 and older live below the poverty line. These are apart from the millions more who are just making ends meet or just above the poverty line. In 2009, 8.9 percent of American seniors earn below the poverty line ($10,289 for an individual and $12,982 for a couple). Likewise, one out of every five of our senior citizens earn below 150 percent of the poverty line.
Meanwhile, aging African-Americans and Latino-Americans fare worse, especially for households headed by someone over 75 years of age. A high 9 out of 10 African-Americans and Latino-Americans do not have sufficient resources to sustain their needs and and help their families.
So many elderly Americans have amassed debts in their working years which remain unpaid and carried over into their retirement age. In the latest US Census Bureau report, 44.4 percent of households led by people older than 65 are wallowing in debts.
Majority of senior debt is due to housing-related loans. American households with seniors register the largest upsurge in average mortgage debts within the 12-year period (2000 and 2012).
But this didn’t mean more seniors were able to purchase and own homes. The loans correspond to borrowing big using the unpaid houses, such as home equity loans, refinancing, extended mortgage terms and even cash loans against the home value. Among households headed by people 65 and older with incomes over $100,000, a quarter or 25 percent have mortgage liabilities.
American baby boomers or those around 67 to 70 years old today are in financial peril over student loans co-signed or co-borrowed for their children or grandchildren. About 2.2 million Americans aged 60 and above have co-signed private student loans for their children. And with the increase in default loan payments due to hard times, they ended up responsible for these debts that their children were unable to pay.
Despite this, senior borrowers for student loans are not on the decline. Borrowers 60 and older remain the fastest-growing age group for student loans, which tripled since 2005.
Surprisingly, it is not only the younger generations that have succumbed to the lure of credit cards and the trap of compounded interests. Many American senior citizens have mounting credit card debts. In fact, seniors carry 50 percent more credit card debt than younger people.
The elderly are among those who fall into credit card marketing when the credit standards was loosened in the 1990s, which was among the factors blamed for the recent strings of US recessions. The sad fact is that while younger individuals splurge on unnecessary spending using their plastic cards, one-third of seniors with credit cards use them to cover their basic necessities and help in household needs.
Because one naturally hopes for a comfortable retirement age, one strives to add up to the retirement funds while still in the peak of health and working age in the form of retirement insurance, investment funds and bonds. However, unstable economy, stocks failures and personal circumstances prevented many senior citizens today to attain these once future life goals.
When money emergency strikes, insurance plans are among the first to be used for cash, either through payment defaults and in premature takeouts. Those who want to salvage whatever little amount that can be earned from their policies after penalties cling on to their plans through higher interest payments or diminished incomes. Even today, there is an increasing trend in the number of parents taking out life insurance policies on children indebted by student loans.
Sadly, while senior incomes and wealth were in the decline over the decades, insurance marketing ploys remain the same, with some even blatantly telling senior targets and their families that carrying debt well over the retirement years is now “socially acceptable.”
Indeed, senior citizens face some unique financial constraints basically stemming from the challenges of old age – higher and more frequent healthcare expenses and reduced income due to lesser job opportunities, retirement or inability to work.
Couple that with economic woes that trigger “unfriendly” policies for seniors, like longer official age for attaining full retirement benefits (62, 65 and then 67 to 70 years), unstable housing industry and rising debt interests, a senior in neck-high debt woes has to deal with ignoring debt collection notices, budgeting a fixed income and living on the bare minimum.
While there are some support in the works, everyone knows it is never enough.
Social Security is currently estimated to keep 40 percent of all Americans age 65 or older out of poverty. But the truth is, many seniors depending on social security find it is never enough. The bigger struggle came in years ago, when the government modified the “full benefit age” which means lesser or reduced benefits when one officially avails their social security gains before the age of 67.
Traditionally, the full benefit age for senior Americans was at 65 while early retirement benefits were first available at age 62 with a permanent reduction to 80 percent of the full benefit amount
However, in 2012, the full benefit age was moved to 66 for people born in 1943 and 1954, and rose to 67 for those born in 1960 or later. For those who needed to retire at age 62, early retirement benefits will still be made available but at a greatly reduced value. After the full benefit age reached 67, benefits taken at age 62 was reduced to 70 percent. Meantime, those who wait for benefits to be taken at age 65 will get a reduced benefit of only 86.7 percent of the full amount.
The idea of delaying one’s retirement age for a promise of a financial bonus (in 2012, when one waits for beyond the full benefit age of 70 years old, he or she can look forward to as much as 32 percent higher value of roughly $3,266 a month) may be understandable. But in reality, there are so few elderly Americans today who can wait, or are willing to wait to delay their social security availment, never mind the promise of a higher monthly support.
The fact is most people claim their social security before they reach the age for full benefits. Of those who started getting retired worker benefits in 2010, three out of four (or 72 percent) opted reduced benefits, with 43 percent of men and 48 percent of women opting to retire at age 62.
Obviously, time-bound investment income is not logical when put alongside the realities of money needs of the present, deteriorating body, slowing mental faculties and overall failing health.
Looking at one’s aging parents and even grandparents, the younger, more able-bodied members of the family should take it upon themselves to contribute something to ease the pain of seniors growing old, feeble and debt-ridden. Starting with shared loans taken out by the elderly to help the young, there are ways to shield them from the responsibilities of repayments.
These are basic ones, like studying hard and ensuring all the money owed for a good education and better employment opportunities are not wasted. With a minimum average student loan payments at $700 a month, a responsible student or graduate can help shoulder all or a bigger portion of this all by one’s self. Pursuing better-paying jobs coupled with some part-time works and responsible spending all add up to relieve the elderly from their financial obligation in the twilight of their years.
Do you know that parents or grandparents borrowing for student loans should not exceed the overall debt (principal and interest) with their annual salary, and it should be payable within 10 years at the maximum? Or that parents should already start working on a college education financing plan (and we don’t mean taking on “educational insurance plans”) as early as the child is in 6th grade?
Most important of all, do you know that involving your children in money issues affecting their future (like researching and selecting what school and college to go into) is an effective way to ease the burdens of college financing? Who knows, your child actually even prefers a less expensive way to go to college based on personal interests, preferences and ambitions, rather than what you want or think as a parent.
One never stops learning, especially where financial management is concerned. This is especially true with personal finance education. In the case of money challenges faced by retirees, sound money views and management skills for the entire household help prevent mistakes of the past (like falling for credit cards and marketing insurance ploys) and mitigate the effects of what’s already done. Personal finance skills in the areas of debt management, household budgeting, smart purchasing and spending control can do wonders to alleviate the plight of households headed by debt-ridden seniors.
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