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2 factors contributing to the growing problem of elder debt

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Recent research from the New York Federal Reserve has shed light on a persistent but little-discussed problem: The heavy debts owed by many of America’s retired population.

This is an issue that has skyrocketed in recent years. Debt held by borrowers between the ages of 50 and 80 increased by roughly 60 percent from 2003 to 2015. 

More concerning for older Americans and their financial advisors is that much of this indebtedness arises stealthily. It’s not because of wanton use of credit cards, but generally because of borrowing that occurred much earlier in life. In fact, the New York Fed reveals that older borrowers hold higher per capita balances in every debt category except for credit card debt. Even auto loans have been soaring for older Americans: The average 65-year-old borrower held 29 percent more auto debt than the same cohort had in 2003. 

Given the havoc that excessive debt can play on retirement planning, estate planners would be wise to keep an eye on these factors, not just for their older clients, but the younger ones who want to avoid these debts later in life. Here are the key factors that the New York Fed found: 

Student loans 

It’s counterintuitive to think that older Americans would carry more student debt than they did years earlier, but that’s exactly where we find ourselves. The amount of student debt held by Americans age 65 and older reached $18.2 billion in 2014, up from just $2.8 billion in 2005, according to the Government Accountability Office. It’s not the case that people have been burdened by taking out loans to help their children or grandchildren attend school, either. More than 80 percent of that debt consists of loans taken for the borrower’s own education.  

Roughly 150,000 Americans had a portion of their Social Security garnished last year to pay down student loans. And it’s not just people who are struggling financially who are saddled with all this debt. Bloomberg News uncovered a 67-year-old man, Eric Merklein, who was stunned to discover that $300 was garnished from his first Social Security check. Merklein had thought his grandmother had paid off his student debts, but the government thought otherwise.  

Even worse: The debt that Merklein had originally owed to Southern Illinois University, $3,750, had grown to $21,118 over the years because of interest and default fees. 

Protect Your Clients: If your clients are unsure whether they are trailing any student debt, the Department of Education offers a National Student Loan Data System at, where anyone can search for student loans and balances, as well as find the names and locales of the loan servicers. 


Conventional wisdom holds that by the time people reach retirement, they will have paid off their mortgage. But that no longer is true. The housing bubble that developed in the early part of the last decade led many people to buy larger houses then they needed, and the subsequent recession left many of those people unable to pay for them. Older Americans were affected as much as anyone — maybe more so. 

As a result, the median mortgage held by Americans 65 and older more than doubled between 2001 and 2013, to $88,000 from $43,400, according to the Consumer Financial Protection Bureau. Thirty percent of homeowners 65 and older were paying a mortgage in 2013, up from 22 percent in 2001. It’s an issue for those even past retirement: Federal Reserve numbers show that the percentage of people 75 and older with home loans rose from 8 percent in 2001 to 21 percent in 2011. 

Protect Your Clients: Even in retirement, people may have plenty of assets to continue paying off these mortgages, but that doesn’t make financial sense for many.  Back in 2007, mortgage rates were nearing 7 percent, so it’s likely that someone is paying mortgage interest that’s higher than the expected rate of return from a portfolio. Look into the financial benefits of paying off a remaining mortgage balance. Even with a potential prepayment penalty, it may well be worth it.  

For estate planning clients, all of these debts can erode the legacy they want to leave for heirs. Make sure your clients are aware that if they die owing money on the mortgage, like any other debts, the proceeds will come out of their estate. 

More features by Tom Nawrocki:

Eye on testamentary trusts: 7 benefits for clients

Using the qualified charitable distribution: 5 IRA scenarios

Reverse mortgages in an estate plan: 7 pros and cons

529 plans vs. life insurance: 7 questions to ask clients