Will Debt-Free Retirement Be the Downturn's Biggest Casualty?
Securian study shows less spending and borrowing don't dent debt
New research reveals that consumers are shunning new debt and saving cash for emergencies. But they are making little progress toward achieving what should be a key consumer goal: debt-free at retirement.
Consumers are currently more concerned about short-term security than long-term financial goals. The 2009 Survey of Financial Values and Debt, sponsored by Securian Financial Group, indicates that saving for emergencies moved up on Americans' list of financial priorities. And while respondents have found many ways to spend less, they are not reducing their debt. Eighty-two percent of respondents are carrying non-mortgage debt, a figure that is virtually undiminished since 2007 when Securian conducted its initial survey.
“At the moment, consumers are clutching cash and postponing debt reduction,” said Kerry Geurkink, director, Individual Annuity Marketing, Securian Retirement. “They are wisely adjusting their spending and borrowing habits, but the ultimate goal of debt-free retirement will be more difficult to achieve until they are better able to balance saving and debt reduction.”
Although consumers may be unable to expedite debt repayment in the near term, they are nevertheless focused on the long-term consequences of debt. Three quarters of non-retired respondents who expect to retire with debt, said they are concerned about the amount of debt they are likely to have when they retire, a plausible worry for Baby Boomers who, as they approach retirement, are accumulating new debt, according to the survey.
Twenty-two percent of Baby Boomers who are in debt owe at least $50,000 in non-mortgage debt, a 10-point spike from 12 percent in the 2007 survey. Geurkink said all respondents are now less likely to view debt as a normal part of their lifestyles, and the steepest decline occurred among Baby Boomers. But their attitudes did not affect their actions: Boomers were the only generation in the survey (which also included respondents from Generation Y, Generation X and the Silent Generation) to add debt since 2007.
The overall dollar amount of debt reported by respondents of all generations has not changed since 2007. Fifty-two percent of those in debt owe $24,999 or less and one-third (35 percent) owe more, which is comparable to debt levels seen in the original survey.
Only one in five (22 percent) respondents in the 2009 survey applied for credit or non-mortgage loans in the last 12 months, and they said they are now less willing to take on debt for cars, vacations, gifts, home improvements or meals out. Respondents also identified several ways to save money on everyday expenses, and eight out of 10 expressed pride in the ways they cut back.
“Americans' willingness to shun new debt and adopt more cautious attitudes toward debt is encouraging,” Geurkink said. “But it appears debt repayment is taking a back seat to weathering the financial storm.”
The recession is the key reason for the mismatch between consumers' actions and attitudes. The percentage of respondents with full-time employment dropped by eight points since 2007; household income and household assets dropped during that time as well. Nearly half (46 percent) of respondents said their household income barely covers necessities, and more than one-third (35 percent) indicated that no matter how hard they try, they do not expect their financial situation to improve.
The survey also signifies the difficult choices respondents are making in response to their circumstances. The percentage of non-retired respondents who cited saving for their children's education as a top financial goal dropped five points, as saving for emergencies rose seven points. The percentage of retired respondents who cited a comfortable retirement as a top goal declined by nine points, as saving for emergencies rose by 11 points.
But respondents also seemed to look beyond the current crisis and the need to boost their bank accounts; most expected to pay off all non-mortgage debt in the next five years.
“Their estimates are probably overly optimistic, considering that two-thirds of the Silent Generation and 80 percent of the younger generations are in debt today,” Geurkink said. “Attitudes toward debt are definitely shifting, but consumers need effective debt-reduction strategies to help them make progress in setting themselves up for debt-free retirement.”
Securian Financial Group helps provide financial security for individuals and businesses in the form of insurance, retirement products and services, and investments. Affiliates include Minnesota Life Insurance Co., Advantus Capital Management, and Allied Solutions, LLC. Securian has nearly $780 billion of life insurance in force, $24 billion in assets under management as of March 30, 2009 and a nationwide work force of 3,500 employees. Securian serves more than 9,000,000 individuals in the U.S.
