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Record debt forces many retirement-age Americans to work longer

Retirement-age Americans are learning to live with less and work longer due to record debt.

In a conversation thread around retirement plans on Reddit, users were quick to share their ongoing financial struggles, particularly connected to retirement. Some have even foregone retiring at the expected age altogether.

“I was thinking I was going to retire at 63 (now!) but decided to keep working my somewhat part time job sometimes full-time job,” Reddit user steel_city_sweetie shared. “We thought we would sell our house, rent a small apartment and buy and RV and do a lot of traveling around the country. Now I am not so sure that’s a good idea.”

The user went on to say that rent on a small apartment is higher than their mortgage payment. But as taxes and insurance cost more than $700 a month, they’ve been unable to make their initial retirement dreams a reality.

“I know we should have been more diligent about paying off our house. I just wasn’t worried about it because I figured eventually we would sell it and buy something smaller with the equity. Now we can’t even find a small house for what we have in equity unless we move out into the outer suburbs,” steel_city_sweetie wrote.

Still, others feel despite the economic hurdles, retiring at the age they planned is the only option.

“It comes to mind every now and then but I’m standing firm on my retirement at 62,” user bicyclemom wrote. “Economic boom/bust cycles are going to happen whether or not I’m working. But I have a shelf life that’s finite and I can live on a little less if I have to. Time to enjoy the fruits of my labor.”

Americans Are Amassing Record Debt

These stories are becoming more common as Americans amass a record amount of debt.

Roughly two-thirds of working Americans age 55 and older said they intend to delay retirement or are unsure if they will be able to retire when they want, according to an Axios-Ipsos poll that was published in July.

This news arrives as household debt reaches record levels. According to the New York Federal Reserve in August, total household debt was at its highest ever, at $17.06 trillion in the second quarter of 2023. Credit card debt in particular rose by $45 billion to a record $1.03 trillion.

The debt is weighing down dreams of retirement for many seniors, with 70 percent surveyed saying they don’t think they’ll be able to retire because they can’t afford it.

“Financial worries are the main reasons people feel they can’t retire,” Axios said in the report. “When it comes to how Americans finance retirement, few feel Social Security will cover most of their expenses. Instead, most Americans—both retired and those who aren’t—look to retirement accounts to finance this life stage.”

Nearly half of those aged 55 and above have had to change their retirement strategies due to outside economic factors, the poll found. These changes can likely be attributed to high inflation and interest rates, forcing many Americans to curb their monthly spending on essentials like groceries and clothing.

“The economy was a worry due to the volatility of macroeconomic forces like inflation and recession, and the resulting impacts on the stock markets and investment performance,” according to Ubiquity in a report.

Safeguarding Your Retirement

Financial planners often recommend replacing around 80 percent of your pre-retirement income to continue living comfortably as you leave the workforce. This is far from average, however, with the Motley Fool reporting last month that 25 percent of Americans have no retirement savings.

As economic conditions remain unstable, Congress has passed legislation to safeguard Americans’ future retirements.

The Secure Act of 2019 was passed under the Trump administration, changing most popular retirement plans used in the United States. The bill raised the minimum age for required minimum distributions to 72, but some don’t think it’s enough to make their retirement dreams a reality.

Still, Fidelity found that retirement account balances grew in the first to second quarter of this year.

“Americans have experienced some tumultuous years, but through Congress’ investment in retirement savings through the Secure Act of 2019, as well as individuals’ continued commitment to save, we are optimistic for the future of retirement security,” Kevin Barry, the Fidelity Investments president of workplace investing, wrote earlier this year.

But as the rising debt record shows, just because Americans are increasing their overall savings doesn’t mean they aren’t losing a solid chunk to credit card debt.

Credit card balances reached $986 billion this year even as interest rates surged with the average moving past 20 percent.

Seniors Aren’t the Only Ones Suffering

It’s not just seniors who are suffering either—debt is especially concentrated among the young.

“Bankcard balances and originations continue to climb as consumers seek ways to cope with inflation, and this is particularly the case among Gen Z consumers, who have seen growth of 19 percent in originations YoY and 64 percent in balances over the same period,” TransUnion said in a report from February.

The debt problem has been growing over a span of 20 years, with 2021 levels for those aged 50 to 59 twice as high as two decades ago, according to the New York Fed.

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