Baby Boomers Consumer Debt Trends

Melissa Davidson
Baby boomers

At a time when some Baby Boomers are dreaming of retiring and lounging on a beach somewhere with a piña colada, many are struggling with debt and are either forced to keep working or come up with creative ways to make money.

Boomers — the generation in their 50s, 60s and 70s — are living longer than any previous generation, and therefore retiring later–all the while taking on an unprecedented amount of debt in the process. Trends show that over the past 15 years, debt has increased about 60 percent for consumers ages 50 to 80.

This is a shift that reflects an aging Baby Boomer generation and the likelihood that they have mortgage, auto, credit card, and other consumer debt at much later ages than previous generations. Specifically, those reaching retirement age are carrying 47 percent higher mortgages and 29 percent higher auto debt than in 2003. Another statistic says Americans between 65 to 74 years old hold more than five times the borrowing obligations that the same age group held two decades ago.

Table of Contents

Lifestyle and Spending Habits of Baby Boomers

Older generations came into the 2008 financial crisis with more income and assets, and stronger credit than everyone else, which allowed them to pile onto their debt even as credit became scarce. Basically, Boomers lived most of their younger years earning more, enjoying access to credit and acting as consumers. Then the economy tanked.

Today, as careers are coming to a close, older folks are trying to pay off debt and retire at the same time, while living the same lifestyle they always have. Sometimes they have to keep working, become more modest in spending, change expectations, and figure out how to budget better. These kinds of dramatic changes can be challenging after a lifetime of credit, relatively high income, and setting expectations about a comfy, quiet retirement.

Savings Facts:

  • Roughly half of all Baby Boomers today have only $100,000 or less socked away, according to a PWC study.
  • About a third have less than $50,000 set aside for retirement,
  • Thirty-two percent of people between 53 and 62 have no emergency savings, which represents the highest among the different age groups.  
  • Only 15 percent have nest eggs worth a half-million or more.

Financial planners say not to withdraw more than 4 percent of retirement savings per year for expenses, If they take out more than that, many Boomers will likely outlive their money. An average age-65 or older household spent $44,664 last year, according to the Bureau of Labor Statistics.

The Most Common Types of Debt Boomers Carry

Below are Gallup Poll percentages of Americans with different types of consumer debt (excluding home loans), by generation:

Credit card debt:

Baby Boomers – 48%

Gen X – 61%

Millennials – 47%

Auto loan debt:

Baby Boomers – 32%

Gen X – 46%

Millennials – 30%

Student loan debt:

Baby Boomers – 6%

Gen X – 25%

Millennials – 35%

Of course, it isn’t just consumer debt and credit cards that are putting a strain on aging Boomers. Homeowners are using their homes to cash out on equity, while others are trading up for nicer houses; this jacks up mortgage balances into retirement. This kind of borrowing and making major purchases late in life can create a debt obligation that simply cannot be met as consumers age, retire, and draw on their savings.

Many seniors are in a position where they don’t have much income or savings, but they do have a line of credit they can use that’s tied directly to home ownership. A home equity line of credit is only a short-term solution. Without a steady stream of income or a nice savings buffer, the homeowner is making monthly payments that’s probably only covering interest.

This is a challenging position to be in, because not everyone can still work or reenter the job market to supplement their income. In some cases, homeowners need to sell their homes in order to pay for long-term care, or they use the line of credit to make modifications to their current home to continue living independently.

What Does All of This Debt Mean?

So what does all of this mean? The Boomer generation is just as in debt as Gen Xers and Millennials, but the consequences are much more serious for the older generation, as they are transitioning into living on a fixed income. The fact that they lead all age cohorts in credit card debt alone helps explain why many aging Americans are staying in their jobs, or working at least part-time, in retirement. All that debt and spending requires more money than a fixed income can provide — especially over a longer term.

Retirement: Planning, Saving, and Enjoying Your Golden Years

If you are behind your peers in saving, it’s not too late to beef up the employer-sponsored  retirement accounts, such as a 401(k) and 403(k). Participants in 2017 can contribute up to $18,000 plus an additional $6,000 for those over 50.

Even with the step of increasing your contributions to retirement, many will still have to continue to work – 52 percent, according to a PWC survey. This gives more time to build savings, less time to need savings, and more money from Social Security. The earliest a senior can collect Social Security is 62, but the longer you wait (up to age 70), the more you receive annually – an 8 percent increase a year.

Saving for retirement can be complicated and stressful. You don’t have to figure this stuff out alone. There are sophisticated retirement companies such as Betterment that help you prepare for the retirement you deserve by coming up with a plan, track debt progress and become deliberate with savings.

Baby Boomers who take baby steps to approaching retirement finances can still impact their future positively. The earlier adjustments can be made, the more equipped you’ll be to handle another economic disaster.

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