Retirees will face a day of reckoning in 2023
The stimulus payments have stopped as inflation remains a persistent burden for all Americans. More concerning however is the impact of the Federal Reserve’s series of rate hikes on consumers who hold a credit card balance. Data collected by CreditCards-com shows the average general-purpose credit card APR is 22.66% and retail credit cards have reached an astounding 26%. Then there’s the average credit card balance carried by older Americans before the Feds rate hikes. Baby boomers carry an average balance of $6,000. The silent generation, those between the ages of 77-94 hold an average of $3,100 in credit card debt. The key words are average balance meaning each of these individuals is seeing higher interest rates which in turn slow down the payment of their principal balance.
The demographics show the older generations are far from debt-free. In fact, adults aged 50-59 hold…
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22% of total American credit card debt, the most of any age group. Those 60-69 hold approximately 17% of all credit card debt. The long-term effects of inflation and debt will have a significant impact on retirement savings. Allianz Life Insurance Company’s 2022 survey found 40% of baby boomers have reduced or stopped saving for retirement altogether. This means future retirees will be less prepared to retire and those that do may have to postpone retirement to ensure their nest egg lasts during their non-working years.
The current debt crisis coupled with historic inflation leaves a handful of choices for older Americans. Find other sources of income, work longer, draw down 401(k) and IRA balances faster, or tap into other assets. Homeowners with significant equity may be able to pivot into a less vulnerable position by utilizing their home’s equity to boost their cash flow. The mere elimination of required mortgage principal and interest payments alone with a reverse mortgage can increase one’s cash flow by 25, 30%, or more! Not to mention paying off credit card balances which stops interest charges and further boosts one’s spendable income.
When it comes to debt American consumers are particularly headstrong choosing to continue to spend despite dwindling savings; oftentimes by using their credit cards. Case in point- despite raging inflation and higher interest rates American online Black Friday spending hit a new record expected to top $9 billion in sales.
The adage that all debt is bad is a worn-out trope. A more accurate representation would say the debt that eats away at your spendable income is the most onerous. Those burdened by consumer debt and who may qualify for a reverse mortgage will have a day of reckoning when their payments become unbearable or their credit lines are maxed out. Do I continue to suffer under the burden of high-interest debt and required monthly payments or do I look to other assets as a potential source of relief? When that epiphany finally hits depends on the individual’s tolerance for financial pain and their willingness to admit what potential solutions are at hand.
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5 Comments
Shannon,
Good presentation! More seniors are resorting to credit Cards just to keep their Head’s above water and yes, the interest rate is killing them. A senior with equity in their Homes and are faced with the rising cost of inflation, credit Card rates through the Roof and income streams not being able to keep up with it all have a reverse mortgage to be their saving grace!
This is an excellent sales tool for originators to use and advertise. The most important thing to come out of it all is that every senior Homeowner who is saved by a reverse mortgage will have their originator to be grateful to!
JS
Excellent article Shannon. I am two years into the reverse world and I have learned so much from you. Thank you!
Garrett- thank you kindly. I’m glad to hear you benefit from our broadcasts. Here’s to our mutual journey of learning.
One of the most confusing areas in household finances is the concept of cash flow. Even in this industry where we provide what is essentially a cash flow product,, the term loan proceeds is freely interchanged with income as if no one misunderstands what we say. The facts are that our presentations particularly on HECMs confuse those whom we try to convince.
I have heard experienced reverse mortgage originators say things like: “Making minimum payments on your credit cards like you have for the last 10 years reduces your income so that you have less to spend.” If their income is solely coming from SSRBs (Social Security Retirement Benefits) how are credit card payments reducing income??? What they are reducing is spendable cash flow.
Today we find that the 10/2/2017 changes and higher interest rates mean fewer prospects qualify for a HECM. So how can we help these seniors get relief from this monster, called credit cards if they can’t get a HECM? Most such seniors need the services of an attorney who helps seniors who are on a fixed income with credit payment problems. There are both non-profit and for profit law firms that will provide such services either on a low cost or no cost basis to low and fixed income seniors.
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