One of the challenges for financial planners in dealing with Baby Boomers approaching their actual (hoped-for) retirement dates has to do with assisting them in addressing their oft-substantial debt loads. Carrying debt has long been a fact of life for Americans, as taking out loans to pay for life’s “finer things” has become not only more fashionable, but a standard practice. Gone, for example, are the days when significant numbers of people would expect to wipe out their home mortgages before they actually retire; a desire to continue to improve the size and quality of one’s residence, as well as the temptation to cash in on the accumulated equity in order to buy this or that, have made carrying a mortgage into retirement now typical for so many entering their Golden Years.
Well, as it turns out, it’s not just mortgages, car loans, and credit card balances that folks approaching retirement are seeing fit to keep as a part of their financial profiles; add education-related debt to the list, as well. That’s right, I said education debt. It’s not, however, what you may be thinking. I’m not talking about Boomers who are still working to pay off school loans they took out as undergraduates, or even loans they took out more recently when they decided to return to college as working adults. The education-related debt plaguing a growing number of retirees and near-retirees pertains to the loans they took out to assist children and grandchildren with the costs of their educations.
According to the LIMRA Secure Retirement Institute, adults in the age category of 65 to 74 are presently carrying almost six times more education debt than they were 25 years ago. Up significantly over the recent decades, education-related debt now represents roughly 15 percent of the total installment debt retirees are taking with them into retirement. For so-called pre-retirees, in the age category of 55 to 64, the picture is uglier, with education debt now representing 30 percent of the total in installment debt they’re lugging around. The weight of these obligations is only going to compound the financial difficulties now facing retirees, who are already carrying record amounts of other debt with them into the land of fixed incomes.
The fact is that as the financial circumstances for so many in America remain very challenging, more people are going to have to re-think just how it is they hope to assist younger family members in meeting the expenses associated with higher education. While it’s nice, on the one hand, that a lot of older Americans are very willing to take on this kind of debt for the benefit of children and grandchildren, the reality is that this is not a sustainable financial profile with which to enter retirement. The answer, in part, may be for the “seasoned” members of the family to engineer broader discussions with children over how education-related expenses should be met. As younger family members are approaching college age, it may be appropriate for grandparents to be more vigorous in suggesting options like garnering the first two years of post-high school education at state community colleges, or to recommend that young folks work while taking just a few classes at a time. In situations like these, wherein students will not be facing enormous expenses to attend school, parents and grandparents can make contributions to education costs, if they so choose, that are just that…singular contributions, minus the ongoing obligations. In any case, this growing debt load for retirees cannot continue, and so it will take smarter approaches to expenses…by everyone in a family…to spare all members of burdensome financial hardships.
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