Debt: The Detour on America's road to retirement

Securian repeats its multi-generational study and finds Americans are responding admirably to the recession – except in one important area.

Remember when Americans' low savings rate dominated the financial news? From early 2005 through mid-2008, we consistently saved less than one percent of our disposable income.¹ And then in May of 2008, our behavior changed abruptly and the savings rate jumped from zero to 4.8 percent.² Perhaps unwittingly, we began to prepare for the current recession, described by many as the most severe economic slump since the Great Depression.

Securian Financial Group's 2009 Survey of Financial Values and Debt, conducted by Mathew Greenwald & Associates, found that in the 16 months since the first survey, many of us have made remarkable changes in our attitudes and behavior regarding money.

• The number that place a priority on saving for emergencies has risen eight percentage points.
• Spending has less appeal now than in 2007. Significant percentages of Americans say they look for ways to save on groceries and fuel, they dine out and buy brewed coffee and tea less, and more likely mend what they own or buy things second-hand.
• Borrowing is less popular, too. Their willingness to use credit to finance cars, gifts and family vacations dropped six and seven percentage points.
• The area of their personal finances where Americans are not making progress is reducing debt. Overall, the amount of debt reported in the Securian survey has not changed since the 2007 survey. Except among Baby Boomers. Now one in five of the Boomers who are in debt owe at least $50,000 in non-mortgage debt, compared to about one-tenth in 2007.

While it's encouraging to learn that Americans are spending less and saving more, debt remains a significant barrier to financial security in retirement. More than half of the retirees surveyed said they had non-mortgage debt when they entered retirement. Among those who entered retirement with a mortgage or other debt, 41% say their debt equaled or exceeded their savings and investments. Clearly, it is going to be more difficult for retirees to pay down debt on fixed incomes than when they were employed.

Non-retirees are worrying more about retiring with debt. In 2007, about two-thirds of non-retirees who expected to retire with debt expressed concern about having debt in retirement. This year, three-fourths expressed that same concern.

Once again, the Securian Survey of Financial Values and Debt offers good news and bad news: The bad news is that Americans have just as much debt as in 2007 and Boomers have more debt. The good news is they are spending and borrowing less, saving more, and much more aware of the impact debt has on their ability to save for and enjoy a financially secure retirement.

¹ U.S. Bureau of Economic Analysis, http://www.bea.gov/briefrm/saving.htm

² U.S. Bureau of Economic Analysis, http://research.stlouisfed.org/fred2/data/PSAVERT.txt