Mortgage Debt – The Growing Retirement Dilemma

How long has it been since you’ve seen a picture of someone burning their mortgage agreement after the loan was repaid? It was once a big deal, especially with the Greatest Generation. There was no joy like that last mortgage payment, and many of our parents prided themselves on burning that paper – usually before they retired.


Yet since the turn of the century, Baby Boomers are increasingly entering retirement still paying off mortgages and even credit-card debt. Having to meet a monthly mortgage payment, at the least, will leave fewer funds for enjoying retirement and, in some cases, can leave retirees in a precarious financial situation.

While there are (currently) some tax advantages available through mortgage interest deductions, most financial advisors counsel those nearing retirement that it’s best to dip into savings, cut expenses or even continue working to pay off their home and other debt before retiring. Unfortunately, more and more Americans are unable or unwilling to do so.

The most recent Consumer Financial Protection Bureau (CFPB) report cited that 30% of homeowners 65 and over had mortgage debt in 2011, compared to 22% in 2001. The number is almost certain to be higher today (leave it to the government to cite figures from several years ago).

Among those homeowners 75 years and older, the rate has almost tripled from 8.4% to 21.2% over the same period. Who would have guessed that over one-in-five seniors 75 and up are still making house payments?

It gets even worse: the amount of debt owed by those 65 and older has almost doubled since 2001. The median debt-load has jumped from $43,400 to $79,000, according to the CFPB report.

Home loans are not the only debt Baby Boomers carry into retirement: The CFPB reports that older Americans are also taking more credit-card debt and even student loan debt into retirement. All of that debt is a fixed expense that can reduce retirees’ ability to enjoy their Golden Years.

blog150910bThe CFPB reported that while the rate of home-ownership among those 65 and older held about steady from 2001 to 2011, but their debt relative to the value of their home jumped from 30% to 46%. Today, that debt number could easily be above 50% of their home value for the average retiree!

The CFPB said that rising mortgage debt is “threatening the retirement security of millions of older Americans. In general, older consumers are carrying more debt, including mortgage, credit card and even student loan debt, into their retirement years.

For many of the roughly 4.4 million retired homeowners with mortgage debt, making monthly mortgage payments on top of paying other monthly expenses can be a hardship.”

What is clear is that there is a stark difference between Baby Boomers and their Depression-era parents. Most people who lived through the Depression wouldn’t think about retiring without having all their debt paid off.

Many Baby Boomers, on the other hand, seem to be fine with retiring in debt, and not just their home mortgage. This is a troubling trend and some financial advisors say it’s a pattern that is unique to Boomers.

Mark Hebner, president of Index Fund Advisors, says the retirees with the least amount of stress and the most financial freedom are those with the lowest fixed expenses. He says:

“One of the problems with debt is it contributes to your fixed expenses in
retirement. The more you have, the less room you have for variable expenses,
such as entertainment and travel.”

So what can you do if you’re preparing for retirement and believe you have too much debt? Here are a few common suggestions:

Reduce expenses to have more cash flow to apply toward paying debt.

Make a detailed budget and stick to it.

Pay off credit cards first as this is the most expensive debt.

Pay down the mortgage faster so it’s gone before retirement.

Delay retirement or work-part time to pay off the debt.

The goal is to retire debt-free. One of the dangers of retiring with debt is that the economy and/or the markets may turn bad, which can reduce your retirement income.

Feel free to call one of our Investor Representatives – Phil Denney or Spencer Wright – at 800-348-3601 if we can be of help. Phil is also a CERTIFIED FINANCIAL PLANNER™ practitioner.

One Response to Mortgage Debt – The Growing Retirement Dilemma

  1. I believe one of the reasons for baby boomers to maintain greater mortgage debt and credit card debt is to financially help their children and grandchildren. For such seniors, their borrowing power will be higher and their interest rate, especially mortgage interest rate, will be much lower.