Boomer Retirement Under Attack

Randy Leonard had his retirement all planned out.

“I was going to spend my mornings painting in the guesthouse at the end of the garden,” says Randy.

“In the afternoon, I’d meet one of the kids for lunch. Then head down to the farmer’s market to pick up fresh produce for dinner.

“Nothing luxurious. Just nice and stress-free, you know?”

But three years into Randy’s “retirement,” his days are far from stress-free.

In fact, he can’t remember the last time he even picked up a paintbrush.

Randy spends his mornings driving a delivery truck part time. And most evenings you’ll find him helping customers and shifting heavy boxes at Home Depot.

“The work isn’t so bad,” says Randy. “But this definitely wasn’t how I wanted to spend my retirement. I don’t really have a choice, though.”

Randy saved diligently for his retirement his whole life. But like many Americans, he’s having to postpone his retirement to pay off one of his kids’ student loans.

Currently, the balance is in excess of $50,000.

“A few years ago, we had the balance down to $40,000,” says Randy. “But after my business went belly up, we hit a rough patch and missed some payments. They added something like $30,000 in fees and interest after that.”

And Randy’s story is by no means an isolated incident.

According to a report from the federal Consumer Financial Protection Bureau (CFPB), Americans are carrying an “unprecedented amount of student loan debt into retirement.”

Some of these folks have their own student loans to pay, while others, like Randy, have taken on mountains of debt from their kids.

In all, between 2005 and 2015, the number of Americans over 60 with student loan debt quadrupled — from about 700,000 to 2.8 million.

And it’s having a devastating effect on their retirement.

This relatively new phenomenon is a direct result of America’s ongoing student loan crisis.

Money & Crisis contributor Jim Rickards explains:

Right now student loans are over $1.5 trillion.

All the subprime and similar junk mortgages in 2007 at the beginning of the mortgage crisis added up to just about $1 trillion. And while the subprime mortgages had default rates of 5% or 6%, which is high, these student loan default rates are over 20%.

Until now, most of that is off-budget. The private banks and servicers make the loans, and the Treasury guarantees them.

But when those loans default, the bank or the servicer goes back to the Treasury and gets paid. And it’s when the Treasury writes that check [that] it’s going to hit the budget. And it’s going to hit like a tsunami. 

You’re looking at several hundred billion dollars added to the deficit over the next few years. 

This could directly result in the next financial crisis. Which would spell disaster for any retirees who are struggling to pay off loans.

Holding debt in a crisis can be financially devastating.

If your income is diminished or wiped out entirely and you start to miss payments, you’ll rack up heavy fees and interest. You can even lose your house like millions of Americans did during the last crisis.

The only option is to try and wipe out your debts now, as fast as possible.

Get Out of Debt — Fast

Some financial advisers suggest paying off your debts highest to lowest, while others swear by lowest to highest (they claim it builds momentum).

Unfortunately, these folks are operating on a common misconception. It doesn’t matter how “large” your loan is. It’s the interest rate on those loans you need to be concerned about.

Your interest rate determines how quickly your debt will grow — the higher it is, the more money you’re going to owe every month. By paying off the loans with the highest interest first, you minimize the amount of interest you pay and the amount you pay overall.

As Jim Rickards explains, “Paying off high interest debt is economically identical to investing in a high interest bond. It’s compounding in reverse. When you pay off high interest debt, the monthly debt burden goes down faster than when you pay off low interest debt because you save the interest also.”

With that in mind…

Step 1: List your debts in order of largest to smallest interest rate.

Step 2: Start by setting aside the funds to make the minimum monthly payment of all your loans.

Step 3: Put extra funds into the debt with the highest interest rate. The only way to eradicate your loans quickly is to commit to paying more than the minimum payments every month. This can be taken from your investment budget.

Step 4: Repeat this method every month until the loan with the highest rate is paid off. After which, move on to the loan with the next highest rate.

As always, we welcome feedback from our readers. If you agree, disagree or have any topics you’d like us to investigate, you can email me right here.

All the best,

Owen Sullivan
Editor, Money & Crisis

Editor’s note: The strategies you read about in Money & Crisis were developed with the help of Jim Rickards, the best-selling author of Currency Wars and The Death of Money. 

For a limited time only, Jim is sending readers a FREE copy of his brand-new hardcover book, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis.

This shocking account of the next financial crisis reveals one of the biggest threats to your wealth today… and shows you the simple steps you can take to protect your money and your family. Claim your FREE copy now.

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