Dying with debt: A dirty little retirement secret

[keepinitreal]

November 22, 2010

Retired Americans are racking up credit-card debt like never before, be it for vacations or medical expenses, and a surprising number have no intention of paying it off before they die.

Nearly 40% of retired Americans said they've accumulated credit-card debt in their twilight years — and aren't worried about paying it off in their lifetime, according to a survey released by CESI Debt Solutions.

"At the end of the day, some people of a certain age say, 'It's too late in the game for me to do anything about it. I can't win. So I'm just going to stop playing the game,'" said Neil Ellington, executive vice president at CESI.

This may come as a surprise to younger generations who thought their parents, the so-called Greatest Generation, were more responsible than youngsters raised in an era of easy money, a culture of credit.

But remember that this is the generation that frowns upon talking about money — and certainly would be embarrassed by any potential money problems. Add in a recession that slashed many retirement accounts in half and that leaves a generation sinking deeper into debt, with a diminishing timeframe to do anything about it — and too much pride to talk about it.

"Most people are too scared to talk about their financial problems, especially in their 'Golden Years,'" Ellington said. "Retirement is supposed to be all about enjoying the time you've been saving up for, and the reality is that many people couldn't save enough," he said.

And yet, that didn't stop them from retiring.

More than half of those surveyed had saved less than $50,000 — and many of that group said they'd saved absolutely nothing — yet they retired anyway. Just 4% said they had delayed their retirement due to debt.

"They get to a certain age and they feel privileged," Ellington said. "They say, 'I'm going to go on that trip even though I have to put it on my credit card.'"

When you're young, you have time to pay off splurges like a trip to Hawaii, but for retirees, procrastination can lead to serious financial problems.

It's not just vacations and entertainment; one of the biggest sources of senior debt is medical expenses. More than 75% of the seniors surveyed said they went into debt for medical or funeral expenses.

Part of the reason they're not paying off their debts is they don't know where to start and they're too embarrassed to ask for help. But the financial crisis may have also played a role.

"Financial institutions haven't been perceived as the most friendly" and many people blame them for the recession, Ellington said. "They think, 'Hey, I'm not going to pay back these guys who ripped off America.'"

One of the biggest mistakes seniors make when it comes to credit cards is being late with a payment.

"That triggers a penalty APR that can exceed 30%, which can trap those seniors who can't pay their balances in full each month in a downward spiral of debt," said Ben Woolsey, the director of marketing and consumer research at CreditCards.com.

Another mistake they make is relying on debt-settlement companies when they get into trouble.

"It's much better to contact card companies directly to work out repayment plans or work with a non-profit debt-counseling service rather than a fee-based settlement company," Woolsey said.

And while many retirees who are being quietly buried under a mound of debt may think they're protecting their kids by not burdening them with their financial problems, if they don't pay off their debts before they die, it will eventually become their children's burden.

Whatever that parent owes will be deducted from his or her estate before that estate is divided among the children and other beneficiaries.

Imagine a scenario where the kids are bickering over who gets mom's house and, in the end, no one gets it because it had to be sold to pay off mom's credit-card debt.

"That is a very realistic scenario," Ellington said. "A lot of kids don't find out how much their parents are struggling until they pass away."

Unfortunately, this debt denial isn't exclusive to seniors: Among those surveyed who had not yet retired, 25% said they were carrying debt of $5,000 or more — yet more than half said they didn't plan to delay retiring because of debt.

And more than one in four said they weren't worried about paying off their debt in their lifetime.

"People think it will all just work out somehow," said Samir Kothari, co-founder of BillShrink.com, a site that helps people lower their bills. "These things are not based on logic but on people being very optimistic about life — defying reality. I think that's what gets people into trouble."

Taking Charge of Your Debt

For those who carry a balance on their credit cards, BillShrink recommends PenFed's Promise Visa, which costs $20 as a one-time fee to join and charges annual percentage rates of 7% to 9%, or CapitalOne's Platinum Prestige card, a no-fee card with an annual-percentage rate of around 12%.

You might assume that most people have paid off their mortgage by the time they retire, but nearly a third of those surveyed said they were still carrying mortgage debt into retirement. BillShrink recommends the Wells Fargo Home Rebate card where your rewards dollars automatically go toward paying off your principal balance on your mortgage.

If you want to make sure your loved ones don't get into debt trouble, BillShrink suggests the Edward Jones Personal Card or Fidelity's Retirement Rewards Card, where your rewards dollars are directly deposited into an IRA, Roth IRA or 529 college-savings plan.

It's not just about choosing the right card, it's also important to lift the taboo on talking about money. It's not only important to talk about money with a spouse or partner, but also with your parents and your kids — before it's too late.

"Talking about money to the important people in your life forces you to come clean about the life you are living and … the way you manage your money," said Katie Dunsworth, one of the "Smart Cookies," a group of friends who formed a money group and now teach others how to take control of their money.

http://www.usatoday.com/money/perfi/credit/2010-11-21-senior-debt_N.htm

[keepinitreal]

Instead of "I'm spending my kids inheritance", now it's "I'm spending my kids inheritance plus borrowing out the wazoo".

Hopefully the kids will realize they're not responsible for their deceased parents' debts when the bill collectors come calling.

[help1234]

Now my curiosity is peaked... What does happen to debt when the person passes? Do the creditors liquidate all assets or what?

[clevelandmom]

Thank you for this article keepinitreal. We live in some ridiculously scary times. The moral of the story here is: Since those of retirement age are racking up credit card bills at the rate they are, keep your eyes on the very small fine print at the bottom of the credit card contract. Soon it's going to say, "in the event of your death, all children, friends, and the closest neighbor to the south of you will be responsible for your debt." (I wouldn't put it past those bastards. . .)

That being said, I am in my early 40's, and I have to admit I am glad I am going through this crisis / life lesson / learning opportunity at the time in my life that I am. Hopefully by killing my bad debt now and having an opportunity to save money in the future I will be in a good place when it's time to retire.

[Flamingo]

Now my curiosity is peaked... What does happen to debt when the person passes? Do the creditors liquidate all assets or what?

The executor or executrix of the estate will be responsible for paying all bills from the estate funds and from any insurance money that comes into the estate, sale of house, property, etc. The debt does not just disappear when the person passes; and a full accounting needs to be provided to the Register of Wills before the estate can be closed.

[keepinitreal]

Once the estate is tapped out, the debt collectors will start calling relatives and demanding payment. Relatives are not legally responsible for remaining debts of the deceased's estate. Hopefully they won't fall for the collectors' lines.

[tobee43]

Instead of "I'm spending my kids inheritance", now it's "I'm spending my kids inheritance plus borrowing out the wazoo".

Hopefully the kids will realize they're not responsible for their deceased parents' debts when the bill collectors come calling.

no the kids won't be until there is something left...like a house or anything else...unfortunately prior to anything being released from the probate courts if there is ANYTHING left it will go to the creditors first....

[tobee43]

The executor or executrix of the estate will be responsible for paying all bills from the estate funds and from any insurance money that comes into the estate, sale of house, property, etc. The debt does not just disappear when the person passes; and a full accounting needs to be provided to the Register of Wills before the estate can be closed.

exactly correct! that is the way it works...of course if there is nothing in the estate ....then it will just run it's course.

[movian]

This is an interesting story. Thanks for sharing it.

My grandmother accumulated a substantial amount of credit card debt - a lot of it from medical expenses. It always made her sick with worry. I remember encouraging her to consider bankruptcy or talk to a lawyer but she was so committed to paying those bills. I often wonder what her quality of life would have been like if she didn't have to worry about that debt. She passed away in 2007. She had no estate.

After she died, the blood suckers did come out in full force and try to convince my mom to pay my grandmother's debt in her "memory." This was as my mother was grieving her mother's death. She stopped taking their calls and just sent them the death certificate.

[espo1357]

This is an interesting story. Thanks for sharing it.

My grandmother accumulated a substantial amount of credit card debt - a lot of it from medical expenses. It always made her sick with worry. I remember encouraging her to consider bankruptcy or talk to a lawyer but she was so committed to paying those bills. I often wonder what her quality of life would have been like if she didn't have to worry about that debt. She passed away in 2007. She had no estate.

After she died, the blood suckers did come out in full force and try to convince my mom to pay my grandmother's debt in her "memory." This was as my mother was grieving her mother's death. She stopped taking their calls and just sent them the death certificate.

Sorry to hear about your grandmother.

Its a shame, just how low these collectors will go to get paid. No shame.

I am in my mid 30s, and I am learning to be very tight with my money, especially after the BK 13, and especially after having several "friends" stiff me out of money.

People and their relationship to money is something that will never be figured out in our lifetime, sort of like women and emotions, lol.

[Flamingo]

Once the estate is tapped out, the debt collectors will start calling relatives and demanding payment. Relatives are not legally responsible for remaining debts of the deceased's estate. Hopefully they won't fall for the collectors' lines.

It can take many months for an estate to be closed out depending on what is involved; it could be a no asset estate or one with many assets. If there are outstanding debts that are not paid on time after someone's death or debts that are not covered by insurance the deceased may have had on the account, the creditors will get in contact with family to contact the executrix or executor; usually that person gets in contact with creditors first after he/she goes through the deceased's documents/paperwork to close out/settle accounts. So if someone lets the debts go without any contact to the creditor, you can bet the family will receive all sorts of creditor calls. It's best to contact the creditors and inform them of the person's passing and for them to work with the executor or executrix of the person's estate.

[RuthCB]

Interesting. When my Dad died, he had an outstanding credit card. My Mom called them and told them he died and that was the last she heard from them.

[HRx]

If there's no asset(s) or living co-debtors just mail the creditor a copy of the death certificate and 99% of the times the collection calls will cease.

[treehugger1]

As someone in their mid-late fifties with a pile of unsecured debt, I could care less about what happens to my debt. I can share this. My retirement proceeds are exempt form seizure; dead or alive. My exemptions remain the same; dead or alive. I have been very careful in educating my children as to my current financial status and likely status upon my death. A CPA friend of mine says he is always stunned at how many "children" are willing to give up their inheritance to pay off unsecured creditors of their parents. I would suggest that every parent close to retirement educate themselves with respect to their state laws and share that education with their children.

Proceeds do not necessarily go to "creditors first" as stated above by tobee43. Education, education, education are the three best things you can give your children. Make it clear to them your financial situation and how to react in the untimely event of your death.

There are so many myths out there that feed upon even more myths ( AND THE MEDIA.) I believe that many attorneys are often under-educated when it comes to unsecured debts and death of debtors. Geesh...

[espo1357]

As someone in their mid-late fifties with a pile of unsecured debt, I could care less about what happens to my debt. I can share this. My retirement proceeds are exempt form seizure; dead or alive. My exemptions remain the same; dead or alive. I have been very careful in educating my children as to my current financial status and likely status upon my death. A CPA friend of mine says he is always stunned at how many "children" are willing to give up their inheritance to pay off unsecured creditors of their parents. I would suggest that every parent close to retirement educate themselves with respect to their state laws and share that education with their children.

Proceeds do not necessarily go to "creditors first" as stated above by tobee43. Education, education, education are the three best things you can give your children. Make it clear to them your financial situation and how to react in the untimely event of your death.

There are so many myths out there that feed upon even more myths ( AND THE MEDIA.) I believe that many attorneys are often under-educated when it comes to unsecured debts and death of debtors. Geesh...

Good to repeat that. Nice post.

Unsecured creditors get what they deserve. The unsecured creditor goes into the business relationship knowing that they may get screwed. Too dam bad. They charge those high interests for a reason, because they know they can get away with it and because their business model allows them to still profit even if others default.

Just like the people going to hell because they don't seek knowledge, the same applies to debt!

Get knowledge people! I am in my 30s, and darn it, I am starting to get it.

Now, someone please offer me some humble pie so I don't get a big head and let pride break me to a fallen man again!