IPFS Menckens Ghost

More About: Economy - Economics USA

Retiring Baby Boomers Face Crushing Debt

The well-written article below is no surprise to me. When I was in
corporate life, boomers would come to me and request a contrived
hardship withdrawal of their 401(k) funds, which they then used to buy
an expensive German car or some other extravagance, resulting in a tax
penalty. I knew what people made, and so I knew that in most
cases their pay had no resemblance to their expensive lifestyle. It's
now caught up to them. Sad--although I don't have much sympathy for the
woman featured below, who apparently is not embarrassed to be featured.
By the way, the low savings and indebtedness of boomers (and
others) will make it very difficult politically to replace government
healthcare subsidies with free-market alternatives, such as health
savings accounts.

Regards,
Mencken's Ghost


Wall Street Journal, February 17, 2017
**
*Retiring Baby Boomers Face Crushing Debt*
**
By Timothy W. Martin


Kathleen Wolf never dreamed of spending her retirement in Iowa.

The 68-year-old Californian had a change of heart after filing for
Chapter 13 bankruptcy. Ms. Wolf was a millionaire whose fortune, built
on buying and selling homes, collapsed in the financial crisis. Her bank
balance fell to $15.

Ms. Wolf said her debt-repayment plan, which eventually left her with
about $1,000 a month to live on, made clear she had to leave Monterey,
Calif., the central-coast city where she lived. She looked online, as
long as 15 hours a day, for places with a low cost of living. In August,
she landed in an Iowa town of around 700.

During her nationwide search, Ms. Wolf found that life in affordable
communities brought trade-offs. "These places never gentrified. They
have undesirable weather," she said. "They have no yoga classes."

Yet Ms. Wolf's journey from tony West Coast to rural Midwest has
afforded, to her surprise, a measure of contentment, as well as counsel
for the nation's 75 million baby boomers. As a group, it is widely known
they face a wider savings gap than past generations. What is less well
documented is how they have piled up more debt, too.

People in the U.S. ages 65 to 74 hold more than five times the borrowing
obligations Americans their age held two decades ago, according to an
analysis of federal data by the Employee Benefit Research Institute, a
nonpartisan, nonprofit policy researcher.

Paying it off won't be easy. Median savings for U.S. households nearest
retirement age has dropped 32% in the past decade to $14,500, according
to an analysis of federal data by the Economic Policy Institute, a
left-leaning think tank.

The financial crisis weakened many households through lost jobs, pay
cuts, home-price declines or a combination of all three.
Credit-card debt and medical bills have climbed for many nearing
retirement. Some people had children late in life, pushing college
tuition costs toward the tail-end of their careers.

"This is the first time where we have seen such a high degree
of debt held by people at such a late stage of life," said Torsten
Slok, chief international economist at Deutsche Bank
<http://quotes.wsj.com/DB> AG.

As a result, many senior citizens will either have to work longer, move
to less expensive places or pare back their spending—choices that
economists say are likely to put a drag on the U.S. economy.

Ms. Wolf, who for years had shopped for food, clothing and luxuries
without constraint, now lives within a budget.

Until recently, she said, "I didn't understand the value of a dollar."


Buying up

Ms. Wolf was born in Sacramento, Calif., and moved to Monterey as an
early teen in the 1960s, growing up around country clubs and mild weather.

She earned two associate degrees in California, trained as an auto-body
painter and studied Arabic at the same Monterey institute that serves
many military and federal employees. Though she lived for periods in
Oregon, New York and North Carolina, she kept Monterey as a home base
for most of her life.

Ms. Wolf owned several cleaning businesses before turning to real-estate
investment in the early 2000s—buying, renovating and selling houses. At
her financial peak in late 2005, Ms. Wolf said, she had $200,000 in an
annuity. The value of her house and savings surpassed $800,000, and she
had an annual income of about $85,000 from various real-estate transactions.

Against the backdrop of the real estate boom, Ms. Wolf thought she would
continue prospering financially into her 80s. She bought fur coats,
designer handbags, furniture and, in the 2000s, a succession of upscale
cars: BMW <http://quotes.wsj.com/XE/XETR/BMW> roadster and a Lexus. She
paid $17,500 to join the Spanish Bay club in nearby Pebble Beach.

"I was just playing being a rich person, I wasn't rich," Ms. Wolf said.
"What you're supposed to do with your money is sock it away. I didn't."

When the financial crisis struck, Ms. Wolf said it took her two years to
curtail spending: "I had never been a budget person." She also was
grieving from personal losses, and eventually fell behind on car and
mortgage payments.

Ms. Wolf turned from shopping at Whole Foods
<http://quotes.wsj.com/WFM> to Costco <http://quotes.wsj.com/COST> to
discount-food markets. As her savings and income dwindled, she turned to
the Salvation Army for dried and canned foods. Instead of making money
flipping houses, she cleaned them.

Her vision worsened, but she couldn't afford the Medicare copay for a
new prescription. To read bills and legal documents, Ms. Wolf said she
would press a magnifying glass to her glasses—in Tiffany frames, which
she laughs about now.

Ms. Wolf was among many older residents of the broader Salinas Valley—a
region encompassing more than 400,000 California residents—who saw their
debt grow over the past decade, made worse by the housing crash.

Residents there over the age of 55 now have a greater debt burden than
their counterparts in all but two U.S. metropolitan areas, according to
an analysis of Equifax <http://quotes.wsj.com/EFX>data by The Wall
Street Journal.

By the end of 2015, residents ages 66 to 70 had accumulated $99,700
in debt compared with $90,600 a decade before; 71- to 75-year-old
residents had $73,400 versus $58,800 over the same period; and those
ages 76 and older had $52,100 compared with $28,200, according to
Equifax data.

Local bankruptcy lawyer Jeremy Peckestimated that half of his clients
are now 55 or older compared with only about 10% a decade ago.

"A lot of people have not been putting away," he said. "I just see it."

The debt buildup among seniors stretched across the U.S. In Bismarck,
N.D., 60-somethings accumulated an average mortgage debt of $20,800 in
2015, up from $17,700 in 2013, according to the Journal analysis of
Equifax data. In Champaign, Ill., older buyers racked up an average of
$5,900 in auto loans, an increase from $3,300 in 2013. In Odessa, Texas,
older residents face average liabilities of $31,100, up 14% from 2013,
the Journal found.


Payment plan

Debt levels have traditionally peaked for people in their 40s, said Meta
Brown, a former senior economist at the Federal Reserve Bank of New
York. That is changing. Debt held by borrowers between the ages of 50
and 80 increased roughly 60% between 2003 and 2015, while debt among
younger borrowers declined, according to Federal Reserve data.

"We're in new territory," said Ms. Brown, who researched debt trends of
senior citizens while at the Fed.

Older Americans now have more credit-card debt than younger people for
the first time, a reversal from the past, according to an analysis of
federal data by the AARP Public Policy Institute. And the amount of
student loans held by people 65 and older is accelerating faster than
the general population, the Government Accountability Office found.

There are conflicting theories about the impact of growing senior debt.
Some economists say they aren't worried because older Americans
traditionally have a lower default rate than the general population. In
addition, if seniors work past typical retirement ages, they will earn
more wages to tax, have more disposable income and gain a few more years
to bolster nest eggs.

Yet it won't be easy for older Americans to keep working. Some 60% of
retirees say they left the workforce earlier than they had planned,
according to the Transamerica Center for Retirement Studies. Only one of
seven of the oldest boomers—many turning 71 this year—have full-time
jobs, according to a 2016 Gallup poll.

"The narrative that Boomers would continue to work forever hasn't turned
out to be true," said Frank Newport, Gallup's editor in chief.

Some economists say the growing number of penny-pinching older
Americans—and a shrinking U.S. workforce—will depress personal incomes
and purchases of everything from shoes to houses, hobbling the economy.

"It's really hard to get out of this slow-growth trap when your labor
force is barely growing," said John Lonski, a chief capital-markets
economist at Moody's <http://quotes.wsj.com/MCO> Analytics.

Debt obligations also leave seniors increasingly vulnerable to a
recession or another drop in home values, economists said.

"Will they take this debt to the grave? It's a question begging to be
answered," saidCatherine Collinson, president of the Transamerica Center
for Retirement Studies.


Homecoming

In 2015, Ms. Wolf filed for personal bankruptcy. She has since agreed to
pay $650 a month until her $31,000 debt is cleared. She decided on the
small Iowa town she knew only by description, where she calculated her
expenses—housing, taxes, utilities—would be about 77% of the U.S. average.

"The Midwest is the only place in the country where the property is
affordable." Ms. Wolf said.

She sold her Monterey condo for around $400,000 in 2016—twice what it
was worth during the housing-price trough but still $67,000 less than
what she paid in 2006.

The transaction left her with about $132,000—enough money, she thought,
to pay for a new home and expenses in her new town.

Leaving Monterey, her home of nearly 45 years, was tough. After moving
out of her house, Ms. Wolf checked into a local hotel where she spent
$2,000 stretching her goodbye over a few weeks.

She eventually bought a four-bedroom house for $70,000, about one-sixth
the price of the least expensive one-bedroom in Monterey. The afternoon
she moved in, her furniture was still en route from California. She had
only a new mattress, which was delivered that day.

On her first morning, she drew a bath in the second-floor bathroom. "I
had wanted an old-fashioned bath tub," Ms. Wolf said. "I was taking a
lovely, relaxing bath. I thought I had finally arrived. It's over."

Afterward, she went downstairs to the kitchen and saw that gallons and
gallons of water had leaked. The ceiling was ripped; walls ballooned out
and cupboards were soaked.

Ms. Wolf had to replace plumbing and the ceiling, expenses she didn't
anticipate. Even still, money from her home sale has provided her a
cushion for the first time in years, she said. Property taxes are less
than one-quarter of what she had paid in Monterey. She has trimmed her
costs by at least half, she said.

She is eating well and bought some new clothes. With a new prescription,
she has updated her reading glasses.

Ms. Wolf will seek a job soon, she said. She has noticed women her age
working at local big-box retailers, and she hopes to find part-time work
at one of them.

Looking back, Ms. Wolf considers herself lucky to have a second chance
at securing a decent retirement. "I made it," she said. "It was a miracle."

*Write to *Timothy W. Martin at timothy.martin@wsj.com
 

1 Comments in Response to

Comment by Charlie Patton
Entered on:

Three guesses what this woman's voting record looks like. Goddamn grasshoppers.


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