Survey: Debt Sitting in Consumers’ Blind Spot

Balancing today’s living with tomorrow’s security on the road to retirement

A risk to financial security during retirement may be the debt consumers don’t see today.

A recent survey of consumers found that nearly half (46 percent) declined to classify at least one common financial obligation, such as outstanding balances on credit cards or home-equity lines of credit, overdue utility bills — even “payday loans” from friends or family members — as debt. In fact, 11 percent of people with debt don’t consider themselves in debt.

In a survey that included retired and working respondents alike, 43 percent of non-retirees surveyed indicated that debt would affect their ability to save for a comfortable retirement “a great deal,” and 32 percent of non-retirees who have debt said they cut back on their retirement savings as a result of their debt.

It’s understood that Americans have debt, but what’s surprising is the impact of debt on their ability to prepare financially for retirement. The challenge of finding the right balance between today’s living and tomorrow’s security becomes greater when consumers either don’t acknowledge or simply don’t understand the extent of their debt.

The survey, conducted for Securian Financial Group, Inc. by Mathew Greenwald & Associates, polled 2,061 consumers. Respondents came from Generations Y and X, plus Baby Boomers and members of the Silent Generation who were retired or near retirement.

How debt affects retirement savings
Respondents overall indicated their top two financial goals were paying off debt and saving for retirement (or, for retirees, ensuring a comfortable retirement for the rest of their lives). Non-retirees with less than $2,500 in non-mortgage debt were much more likely to concentrate on saving for retirement than respondents with higher debts. And, while seven in 10 respondents said disposing of debt was a strong priority, only four in 10 actually paid down more debt than they added during a 12-month period.

Retired respondents offered evidence that the debt concerns of working respondents were justified. More than half retired with non-mortgage debt, and about one in four (23 percent) said their debt equaled or surpassed their savings and investments at retirement time. Thirty-eight percent said their current debt loads affect retirement security a “great deal.”

The survey indicates Boomers and Silent Generation-respondents may face a surprise as they prepare to retire: 26 percent of Boomers and 33 percent of Silents expect to carry non-mortgage debt into retirement, but 52 percent of actual retirees report they did retire with such debts.

More women focus on paying debt, but carry more credit card debt than men
Women comprised nearly 50 percent of the survey respondents and their attitudes toward debt differed markedly from men’s. Nearly three-quarters (74 percent) of women placed a “strong priority” on paying off their debt, while less than two-thirds (64 percent) of men shared this priority. In a list of financial goals, most respondents (51 percent) chose paying off debt as first or second most important, a choice favored by more women than men. Men, by contrast, were more likely than women to rank saving for a comfortable retirement as one of their top two goals. Nearly six in 10 of the women who are not currently in debt (58 percent) said they are not at all likely to take on new loans or debt in the next 10 years, far more than the 42 percent of men who said the same.

Among respondents who had debt, more women than men carried credit card balances from month to month and a larger share reported being behind on their bills. They were also slightly more likely to admit to overspending. In a list of possible scenarios, most respondents (60 percent) said they were willing to take on debt to buy holiday gifts; six percent more women than men were likely to accept this debt. Men were more likely than women to take on debt for cable or satellite TV service or to dine out regularly.

Youngest respondents resemble oldest on some points
The 20- to 26-year old Generation Y respondents were more like Silent Generation respondents (who ranged in age from 62 to 73) in their attitude about the inevitability of debt: only 17 percent of each group said debt is a normal part of their lifestyle. By contrast, 23 percent of Generation X (born in the mid-1960s through 1982) respondents expressed this attitude, which they may have learned in part from their Baby Boomer parents; of all generations, Boomers were most likely to say that debt was a normal part of having the lifestyle they want (27%).

Generation X respondents were much more likely than other generations to have more than $25,000 in non-mortgage debt; 19 percent had $50,000 or more. In contrast, Generation Y and the Silent Generation are least likely to have non-mortgage debt totaling $25,000 or more. If Generation Y preserves a stricter approach to debt, it may avoid feelings of financial insecurity, which two-thirds of respondents who had $25,000 or more in non-mortgage debt expressed.

Forty-three percent of working (non-retired) respondents who have debt indicated that debt would affect their ability to save for comfortable retirement a “great deal” and 32 percent said they cut back on their retirement savings as a result of their debt.

Boomers’ road to retirement looks different from Silents’
Though Baby Boomer and Silent-Generation respondents were relatively close in age, there were distinct differences between them. For instance, Baby Boomers said more frequently than other generations that debt is a normal part of having the lifestyle they want, while Silent Generation respondents were among the least likely to agree. Silents expressed the most satisfaction with their current financial situation, though Baby Boomers as a group had more income.

Baby Boomers were 12 percentage points more likely than Silents to say they overspend, and Silents were less likely than Baby Boomers to have non-mortgage debt (70% vs. 85%). In fact, Boomers were about as likely as respondents from Generations X and Y to have debt other than a mortgage, indicating that the practice of using debt starts early and continues well into later years.

Twenty-six percent of Baby Boomers who are not yet retired expected to retire with non-mortgage debt and 32 percent expected to retire with mortgages, but the experience of actual retirees indicates that these expectations may be unrealistic; 52 percent of retired respondents said they retired with non-mortgage and an equal proportion retired with mortgage debt.

Regardless of generational differences, the survey shows the need for consumers to head toward retirement with their eyes wide open. Americans should take a hard, honest look at their debt and its potential impact on their financial security in retirement. Resources such as financial advisors, debt counseling and other financial tools can help assess individual situations and find the right balance.

Securian Retirement is a unit of Minnesota Life Insurance Company, a Securian company. It has been providing comprehensive retirement plan solutions since 1930 and serves over 3,300 retirement plans nationwide with more than $10 billion in assets. Securian Retirement offers annuities and retirement plans underwritten by Minnesota Life, one of the most highly-rated life insurers in the US. Securian also has over $634 billion of life insurance protection and over $30 billion in assets under management (as of December, 2007).