Wednesday, November 24, 2010

Dying With Debt--A Dirty Retirement Secret

From USA Today.

"Retired Americans are racking up credit-card debt like never before, be it for vacations or medical expenses, and a surprising number have no intention of paying it off before they die.

Nearly 40% of retired Americans said they've accumulated credit-card debt in their twilight years — and aren't worried about paying it off in their lifetime, according to a survey released by CESI Debt Solutions."

Who ends up paying? We all do in the form of harsher regulations to prevent default--no matter what the fault.

"This may come as a surprise to younger generations who thought their parents, the so-called Greatest Generation, were more responsible than youngsters raised in an era of easy money, a culture of credit.

But remember that this is the generation that frowns upon talking about money — and certainly would be embarrassed by any potential money problems. Add in a recession that slashed many retirement accounts in half and that leaves a generation sinking deeper into debt, with a diminishing timeframe to do anything about it — and too much pride to talk about it."

Throw in a little Alzheimer's and mental guard-reduction...

"Most people are too scared to talk about their financial problems, especially in their 'Golden Years,'" Ellington said. "Retirement is supposed to be all about enjoying the time you've been saving up for, and the reality is that many people couldn't save enough," he said.

And yet, that didn't stop them from retiring.

More than half of those surveyed had saved less than $50,000 — and many of that group said they'd saved absolutely nothing — yet they retired anyway. Just 4% said they had delayed their retirement due to debt.

"They get to a certain age and they feel privileged," Ellington said. "They say, 'I'm going to go on that trip even though I have to put it on my credit card.'"

Boomer 'til the end, I guess. They call THIS the greatest generation?

"It's not just vacations and entertainment; one of the biggest sources of senior debt is medical expenses. More than 75% of the seniors surveyed said they went into debt for medical or funeral expenses.

Part of the reason they're not paying off their debts is they don't know where to start and they're too embarrassed to ask for help. But the financial crisis may have also played a role.

"Financial institutions haven't been perceived as the most friendly" and many people blame them for the recession, Ellington said. "They think, 'Hey, I'm not going to pay back these guys who ripped off America.'"

One of the biggest mistakes seniors make when it comes to credit cards is being late with a payment."


"Another mistake they make is relying on debt-settlement companies when they get into trouble."


"And while many retirees who are being quietly buried under a mound of debt may think they're protecting their kids by not burdening them with their financial problems, if they don't pay off their debts before they die, it will eventually become their children's burden.

Whatever that parent owes will be deducted from his or her estate before that estate is divided among the children and other beneficiaries.

Imagine a scenario where the kids are bickering over who gets mom's house and, in the end, no one gets it because it had to be sold to pay off mom's credit-card debt.

"That is a very realistic scenario," Ellington said. "A lot of kids don't find out how much their parents are struggling until they pass away."

Unfortunately, this debt denial isn't exclusive to seniors: Among those surveyed who had not yet retired, 25% said they were carrying debt of $5,000 or more — yet more than half said they didn't plan to delay retiring because of debt.

And more than one in four said they weren't worried about paying off their debt in their lifetime."

Retirement itself can cause problems--if there's no plan on how to occupy the time, there always seems to be plenty of time to shop, and buy toys that are too big to fit in the house (like an expensive RV) or toys too big for the wallet. Work takes up loads of time, and when that time is now freed up and not put to good use...well, read my own adventures with death debt and estate settling.

What the story does not mention is that the in-laws were about $100k in debt, but it wasn't DEBT debt--it was a combination of a gigantic RV in the driveway that wasn't even 3 years old, sitting next to a house that needed a new roof BADLY, as well as vehicles that didn't run, more motorcycles than people to ride them, a backyard bordering on Sanford & Son's junk yard, and a kitchen with holes burnt into the counter top from hot pots directly on Formica.

In all the mess, there was a little credit card debt, but it was from traveling expenses (gas, food, etc.)

Then we stepped in, and the RV got surrendered back to the dealer, the motorcycles got sold off, the non-operating cars got operational and sold off, and the house got little upgrades to make it sellable. Thank God they died when the housing market was still hot--otherwise, we'd still be $20k in the hole for cleaning up their mess. The house sold, proceeds divided among the kids, and tax returns filed.

All but the junk mail got settled. We still get junk mail for them to this day.

I found it strange that they had money to finance and pay for the RV, but they couldn't bother to get their roof or counter tops fixed!

If anybody tells you that dying in debt doesn't hurt anyone besides the bill collectors is WRONG--especially when there's a reverse mortgage involved or no estate left to deal with. Residual debt is ALWAYS going to hurt someone: the beneficiary (ies) or the general public.

"You might assume that most people have paid off their mortgage by the time they retire, but nearly a third of those surveyed said they were still carrying mortgage debt into retirement."

My in-laws refinanced their house, but not for just the balance owed. They did a 100% refi of their existing loan, meaning they threw away 20 years of house payments for the sake of a lower interest rate. I thank god they didn't refi for market value!


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