From the March 2008 issue of Boomer Market Advisor • Subscribe!

Boomers' love-hate relationship with debt

Securian Financial Group recently released a survey that provides useful insights on a growing national issue -- debt. Household debt as a percentage of household assets is at an all-time high. A number of financial advisors have told me about affluent clients who are house poor and overspending. And the problem is not confined to those in their working years. The Federal Reserve Board found that from 2001 to 2004, the proportion of Americans households headed by someone ages 75 and over and in debt rose from 29 percent to 40 percent. And this was during a time of economic expansion.

Results of the Securian study suggests a strategy that I think financial advisors should adopt.

The company surveyed people from four generations -- Generations Y and X, baby boomers and members of the silent generation, now between ages of 62 and 73. They found that most Americans, from all generations, tend to be philosophically anti-debt. Most think debt should be avoided if at all possible or used only in important situations. Only one in five (21 percent) believe that debt is a normal part of having the lifestyle they want. Two in three (65 percent) believe that financial security means being able to pay bills for basic needs each month without debt. Yet over four in five in each generation have non-mortgage debt. Even 70 percent of the Silent Generation have non-mortgage debt and most are now retired. And non-mortgage debt can be quite high. One third of people with non-mortgage debt owe at least $25,000.

The impact of this non-mortgage debt is clear. Among those with over $25,000 of non-mortgage debt, 67 percent feel a low level of financial security. This is clearly why most Americans place a high priority on paying off debt.

Debt is especially threatening in retirement. We no longer have the luxury of inexpensive retirements for a frugal generation. With longer and more expensive retirements, rising health care costs, no defined benefit coverage and higher lifestyle expectations, retirement will be a growing financial challenge. Add debt to the mix and the problem becomes clear.

Forty-five percent of survey respondents say they want their advisor to help manage their debt. The study suggests that advisors should advance the idea of debt free at retirement. Clients are philosophically anti-debt, paying off debt is Americans leading financial goal, but most cannot do it by themselves. They want help. Debt free at retirement is a goal they will respond to and appreciate, and it accomplishes a number of things.

It helps people get their spending to levels they can sustain during a potentially long retirement period. It helps protects against uncertainties and market volatility. Those without debt can curtail spending and reduce the number of units they're forced to sell in a market downturn.

Client problems are advisor opportunities. With debt at record high levels and clients struggling to get free, debt management is a service they'll appreciate.

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