Friday, February 1, 2013

Nearing Retirement With Lots of Debt

The current issue of Money magazine spotlights several families that are nearing retirement. This couple's situation hits home for me.

Larry and Lynn live in the Pacific NW, as do I. They earn double what I make but there's two of them.

They have family obligations, not all of which are mandatory but for which they feel responsible. Tell me about it! I can empathize.

Their retirement savings are comparable with mine given that I have only myself to save for but I'm several years further down the road to retirement than they are.

And both of our families have accumulated too much debt, a lot of it the result of what we feel we owe our families. Whether this is cultural (Larry is from Guam) or social (my children were adopted as older children and came to me with physical and emotional issues), we both have to deal with the financial fall-out.

I note that the article says Larry and Lynn will have their debt be paid off in 5 years, but that doesn't seem to cover their house, which is apparently upside down. I'm glad not to be in that position. The one thing I'm grateful for is the refinance I did in 1999 changing my 30 year mortgage to 15 years and simultaneously lowering the interest rate. Even though the 5.5% interest now looks high, I will own my home in another 15 months, and can then put most of the mortgage payment (currently $1235 a month for the payment, taxes and insurance) toward my consumer debt beginning in June, 2014.

I don't know that I would take the financial advice to cut back on retirement savings. In the article, Lynn has been very consistent with her contributions and at age 54, I wouldn't feel it prudent to lower them. Still, I have thought about it for myself. What stops me is the fear of not reaching my retirement goal of at least $400,00 in retirement funds by the time I leave the workforce. That, plus my social security should give me plenty for my day-to-day expenses as well as a cushion for traveling and other retirement desires.

Also, it would be nice to have a $14,000 windfall coming.

I don't see any of those on my personal horizon!

I hope, in five years, both of our families find ourselves free of our consumer debt.


Laura said...

First, congratulations on having your home almost paid off! That's quite an accomplishment.

We adopted three children in our mid- to late-40s, and it's one of the biggest, if not the biggest factor in our having not much in savings as we got near to retirement age. The adoptions used up our retirement savings and we borrowed as well to bring our kids home. Raising kids these days costs an arm and a leg; it felt like we could never catch up. Three years ago we found ourselves with a load of unsustainable debt, and set out to get rid of it. We never thought, however, that we would be able to retire at least not until we were in our 70's or 80's.

Fast forward to this year and my husband will retire this June. With minimal debt (that we can pay off in a year), retirement became possible. My husband is retired military, so receives a monthly pension for his service, and with three children under the age of 18 will receive additional benefits from Social Security. He will also get a small pension from his current employer. I will continue to work (very) part-time as an instructor at a local community college. As our children "age out" of receiving SS benefits, I will be eligible to start drawing my SS and my PERS. Our home thankfully has never lost it's value or gone underwater.

We plan to sell our house next year and move to Hawai'i - our retirement dream. It's possible because we will have paid off our debt (without any windfalls, just a long, hard slog).

Florence said...

Congratulations on being so close to paying your house off! After we paid our house off, I immediately totaled how much our home owners insurance, property taxes, and home owners association fees would be each year. Then I divided by 12 and each month, the first thing I do is transfer that amount into a separate savings account. That way when these come due, I already have the money to pay them. And it is not an inconsiderable amount either!!

Laura said...

P.S. Would you add my new blog to your blogroll? I'm no longer blogging at I'm Losing It Here but have segued to Noho'ana Hau'ole: Life Is Good, focusing on retirement and relocating to Hawaii.

address is:

(you don't have to publish this comment!)

Grace. said...

Laura--I am publishing both of your posts. I'm also leaving "I'm Losing It" up for awhile so folks can keep track of you. But I added your new blog to my blogroll.

Florence--really good idea, and one I plan to emulate when I--finally!--get the house paid off.

Mark said...

Grace - That couple is probably going to fail because they haven't addressed this problem: "We want to do for our daughters what our parents couldn't do for us". The next time a wedding or other family "want" comes up, they are likely to borrow again to provide it. When you are in your 50's and don't have $20k to pay for your adult daughter's wedding, you put that problem on your daughter, not on your credit card.

Barb said...

Grace, if that government or employee pension is a given (as mine s), then I can see lowering the retirement contributions to the employer match. If that 1300 monthly pension was not part of the package, I would stay at the five percent. I appreciate the pain-as a widow with just ss, I felt I had to borrow to send son to school-and then of course I borrowed for my schooling. the things we do...fortunately I enjoy my hobby buienss and I control when and where it happens, so I still have retirement..

LC said...

I admire your perseverance.

Unknown said...

Thank you so much for the information! My husband and I are thinking about atlanta retirement communities . We have been planning for this for the past few years and we have been working towards this as a goal since we got married. However, my husband still has a lot of debt in his name. We are really concerned about how this is going to effect us if we chose to retire. We were thinking about maybe holding off on the retirement plans until after we get a better hold on his consumer debt. Is this a good idea? How long should we wait? Thanks again for the information!

lizzie said...

It is so fantastic to be debt-free including mortgage when you reach retirement.
Fantastic !

Jane said...

Hi Grace - I am wondering what you mean by their house is upside down. I am guessing that means they owe more than its worth?
I'm with Mark - once I start living on my pension (1.5 years)my daughter will have to cover her own expenses and I won't be able to help her by paying for an entire wedding. I would like to put by a small amount (perhaps $100/month)so that i can make a contribution from time to time...such as pay for her wedding dress, establish a RESP for her future children etc but that will be cash, NOT credit.

Nancy Thompson said...

I just discovered your blog filled with great conversation and information! My husband retired this year and announced he wanted to sell everything we owned and become citizens of the world in our retirement. Many lively conversations later, I decided to get on board and set about trying to figure out how we could radically rethink our retirement vision. I blog at Just a Backpack and a Rollie to share information, insights and inspiration for budget travel, living abroad, simplifying our lives and finding joy in the next act wherever the road takes us. Thanks for sharing your stories! I'll definitely be following.

Martin E said...

Having a ton of debt can make retirement difficult, if not impossible. If retirees are on medications then prescription drug costs can also hurt the pocketbook! Note that there are group conversion plans that can help out, but they must be applied for within 60 days of losing employee benefits coverage.

Unknown said...

It’s a safe bet that boomers will confront another recession and bear market before they retire or soon after. Because of this, I’d recommend taking advantage of the growing economy and stock market to follow through on the finance strategy that will let you manage through the next downturn without panic and (too much) fear.

Anne @ IRA vs 401k Central said...

Hello there!

This is such a good post. Congratulations on having your home almost paid off! That is really an accomplishment.