Cashay logo

Empowering your money

Study: Retirees more than doubled their debt in 2020

The pandemic has pushed Americans to increase their debt two-fold, according to a study by Clever Real Estate, an online platform that connects buyers with agents. The average retiree holds $20,000 of non-mortgage debt, a 104% uptick from 2019, according to the survey of 1,.

“This finding surprised us as we didn’t expect to see so much debt, especially double that of 2019 for retired folks,” said Francesca Ortegren, data scientist at Clever Real Estate. “I think in addition to the pandemic, this is a result of people’s life expectancy increasing and the need to save for 20 years.”

As the pandemic’s lifespan remains indefinite and health expenditures increase across the board, experts urge retirees to build up their emergency savings.

Senior mature older woman watching business training, online webinar on laptop computer remote working or social distance learning from home. 60s businesswoman video conference calling in virtual chat
Senior mature older woman watching business training, online webinar on laptop computer remote working or social distance learning from home. 60s businesswoman video conference calling in virtual chat

Medical costs are the top culprit for retiree debt

The top reason retirees are going into debt remains medical bills. The study found that 47% of retirees who say they can’t cover expenses have trouble paying for healthcare.

“Health problems or unexpected job losses, like many Americans are facing in today's pandemic, can force people out of work and into early retirement,” said Sam Abbas, CEO of SimplyWise, a financial firm. “Wherever possible, building up alternative assets and savings can be critical for making it through retirement.”

Nearly two-thirds of retirees reported they retired earlier than expected due to healthcare reasons, while recent estimates by The Centers for Medicare and Medicaid services found that national health care spending will continue to grow at an average rate of 5.5% per year for the next six years.

It’s worth noting<a href="" rel="nofollow noopener" target="_blank" data-ylk="slk:nearly two-thirds of retirees;elm:context_link;itc:0;sec:content-canvas" class="link rapid-noclick-resp"> nearly two-thirds of retirees</a> report they retired earlier than expected due to healthcare reasons. (Source: Getty Creative)

To better align these expected expenses, President Biden is proposing using the CPI-E to calculate cost-of living adjustments for Social Security benefits This inflation measure takes health care spending for adults 62 and older in account. Currently, these adjustments are calculated using the CPI-W, an index that tracks households with at least half of their household income coming from clerical or wage-paying jobs.

Aside from healthcare, the study found that 43% of American retirees struggle to pay for groceries and 37% struggle with credit card debt.

“People in retirement who aren’t focused on grocery issues should focus on paying down credit card debt first due to the high interest rate,” Ortegen said, who predicts 2021 will bring a larger number of retirees working part-time jobs. “Also working part-time may not be a bad idea as long as you find something you truly enjoy.”

Nearly a third of Americans struggle to pay mortgages and rent

The study found that 32% of Americans couldn’t meet their mortgage and rent payments. The news follows recent estimates that up to 14 million renter households are at risk of eviction after the official CDC moratorium lifts at the end of this month, unless Congress approves a March extension.

Close up of a senior businesswoman using a tablet in the office
As mortgage interest rates remain in their lows, with the 30 fixed-year hovering around 2.77%, according to Freddie Mac, many retirees also struggle with paying off housing debt. (Source: Getty Creative)

“If you are a homeowner and you have debt, make sure you look at how you can use assets you currently own to get rid of high-interest debt,” said Tony Molina, certified public accountant at Wealthfront, a financial firm. “Many retirees may own a home with a ‘low’ interest rate, but they may not realize just how low rates have gone.”

Aside from refinancing, as home equity remains at an all time high and mortgage rates near all-time lows, Molina recommends retirees consider a cash-out home equity loan to pay off their higher-interest debt and then lowering their monthly mortgage payments.

While no one can predict how the rest of 2021 will turn out — and the study noted only 35% of retirees believe they are adequately prepared for retirement — a six-month emergency fund should be at the top of retirees’ goals.

“Many retirees may not see the value in at least six months of living expenses set aside in cash but this past year has really put into context just how important having sufficient cash set aside really is,” Molina said. “If you already have six months of cash in a savings account, work towards adding even more as no one knows what this year will bring.”

Yahoo Money sister site Cashay has a weekly newsletter.
Yahoo Money sister site Cashay has a weekly newsletter.

Dhara is a writer for Cashay and Yahoo Money. Follow her on Twitter @dsinghx.

Read more information and tips in our Investing section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook