Debt Realities for Those Over Fifty
Middle age was once a time when your kids were grown, educated, and out of the house, which was, by the way, paid off. It was more of a cultural issue back then. Up until the 1980s, debt was something best avoided entirely, and very few people nearing retirement age actually kept a mortgage past the age of fifty if they could help it. Those who did never talked about it.
With the 1970s, the consumer credit boom hit with a vengeance. This is when MasterCard and Visa — once known to people of a certain age as BankAmericard — took their baby steps and found their way into more wal-lets around the country. While mortgage debt was always deductible, the credit card industry enjoyed a major loophole that wasn't closed by Congress until 1986 — the government allowed you to deduct interest on credit card revolving balances and other consumer loans for autos and boats.
Those were the days. The “yuppie” era of the early 1980s brought a time of unprecedented consumer spending aided to an extent by an improving economy. Credit card debt would continue its march even after the deductibility window was closed — people were hooked.
What has lingered is a permanently changed attitude about debt. It became stylish to use a credit card to pay thirty years ago. That has changed the debt picture for most Americans, particularly for older Americans. For the most part, it's not been a positive development.
Most people won't have to worry about this, but there actually is a limit on the mortgage deduction. As of 2007, it exists for mortgages worth up to a total of $1 million on first or second homes. Also, you can deduct up to $100,000 on a home-equity loan.
During the 1990s, the median total amount of money that older people (aged fifty to seventy) owed doubled, or nearly doubled, in every income bracket, according to a 2002 study by AARP's Public Policy Institute. Mortgage debt rose from about one-third to over one-half of total elder debt.
All but the lowest-earning men should have accumulated a nest egg of twelve times their income by the time they retire, according to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute, which means $900,000 for a man earning $75,000. A woman, because of a higher life expectancy, should have fourteen times her income.
Why is debt rising for older Americans? It's largely due to poor savings habits, stagnant income gains, and the limitations of health insurance — that's right, health insurance. Many older Americans find themselves risking dangerous levels of debt through rising medical costs they face when they get older. The U.S. Centers for Disease Control reported in 2006 that 13 percent of Americans aged forty-five to sixty-four had no health insurance. (Medicare kicks in at age sixty-five.) As mentioned in Chapter 6, medical debt is a major cause of bankruptcy.
