A Reality Check On Debt Before Retirement
Borrowing money seemed to make sense when the interest rate on my home-equity line of credit was 4.5 percent. And borrow I did, almost up to the $100,000 tax-deductible limit.
Then interest rates started going up, and suddenly I was paying 7.75 percent, barely able to keep up with the interest payments.
My debt troubles could have ended badly, but fortunately some money came my way. Today, the debt on my home-equity line is just more than $50,000 -- still way too high but far more manageable. And I'm paying it off as fast as I can so I don't have those payments when I quit working.
I wasn't frivolous with the money. Most of it went for a renovation aimed at making my ancient, drafty former farmhouse warmer and less expensive to heat in the winter.
Carrying a load of debt into retirement can be a frightening -- and dangerous -- thing. But a growing number of people are doing it. In 2004, 60.6 percent of families headed by someone 55 or older carried debt, up from 56 percent in 2001, according to the Employee Benefit Research Institute. Their level of debt rose, too, from an average $29,309 in 1992 to $51,791 in 2004. One in 10 workers 40 or older worries about being able to pay off non-mortgage debt before retirement, according to a survey conducted for the AARP.
Blame low interest rates on home-equity lines of credit and relentless credit card promotions. Some people, of course, won't live within their means. That includes baby boomers -- now headed beyond their peak earning years -- who may need a debt reality check before they book that trip to the triathlon in the Virgin Islands.
Others are driven to high debt by life's circumstances.
George Hieronymus realized a year ago, at age 63, that he was heading toward retirement with a mountain of credit card debt. He dreaded opening the mailbox and confronting his credit card bills, which had climbed to more than $100,000.
The load began piling up about 13 years ago when Hieronymus's mother-in-law, who had Alzheimer's, moved in with him and his wife. Mary Ann Hieronymus left the workforce to care for her mother. The couple incurred other costs, including medications not covered by insurance and hiring a caretaker to provide periodic breaks for Mary Ann.
At about the same time, Hieronymus took a pay cut of about 45 percent, trading a job as the general sales manager of a car dealership in Anchorage for a job as executive director of a soup kitchen and day shelter for the homeless called Bean's Cafe. "I did that for six years, and it was worth every penny of it. I didn't care," said the native Texan. "I may have taken a beating from the credit cards, but it was worth every minute of it."
Now a consultant to nonprofit groups, Hieronymus got help last year through the AARP, which was offering assistance to people who were willing to share their stories. The organization put him in touch with two financial planners, who set him on a course to dig his way out.
Hieronymus and his wife had already taken some steps before meeting with the planners. They had cut back on spending, reducing their meals out and their travels. They moved into a smaller house about six years ago.