Older Americans struggling with debt, holding little cash

Oct 30, 2017 12:39:00 PM / by Darwin Bayston, CFA


Analysts from the website MagnifyMoney recently poured over data from the 2017 University of Michigan Retirement Research Center’s Health and Retirement Study. Their published conclusions are sobering.

As reported by NextAvenue, the team found that a growing number of Americans are carrying debt into retirement, which threatens the financial security of their retirement years:

  • Roughly 40 percent of older Americans (age 50 and above) have at least $5,000 in credit card debt;
  • 22 percent of those surveyed owe more than $10,000, an amount exceeding what most of them have in their bank accounts; and
  • More than one-third (37 percent) of older Americans have less than $1,000 in their checking accounts.

“The combination of more debt and less liquidity leaves older Americans in a potentially precarious position as they gear up for retirement,” writes Nick Clements, a former banker and co-founder of MagnifyMoney.com.

 If you’re one of the seniors burdened by a stubborn debt load and carrying too little cash to wipe it out, it might be prudent to explore all assets at your disposal that are capable of freeing up some money.

Reverse Mortgage

For example, if you own your home, you may want to consider a reverse mortgage. This is a loan available to homeowners that allows them to convert part of the equity in their homes into cash. The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower -- the borrower is not required to pay back the loan until the home is sold or otherwise vacated.

Another possible source of liquidity might be to explore the possibility of selling an unwanted or unaffordable life insurance policy. Known as a life settlement transaction, this is the sale of a life insurance policy to a third party for more than the policy’s cash surrender value. A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured.

Life Settlements

Candidates for life settlements are typically aged 70 years or older, with a life insurance policy that has a death benefit or at least $100,000. The sale of a policy can bring you roughly seven times more money than the cash surrender value of your policy. Bankrate described life settlements as a way for seniors who own life insurance policies to create “real value for the capital they have invested in their policies.”

To learn more about life settlements, how they work and if you’re eligible, call the LISA office at (888) 521-8223 and we’ll be happy to answer your questions about options available to you.

Darwin Bayston, CFA

Written by Darwin Bayston, CFA

Darwin Bayston is President and CEO of the Life Insurance Settlement Association (LISA). His charge is to extend the outreach of the Association to all participants of the life settlement industry from consumers to capital providers, including producers, brokers, providers and service providers who are part of the life settlement market. He was previously Managing Director of Life Settlement Consulting & Management (LSCM), founded in 2004 and specialized in life settlement policy and portfolio valuations, and life expectancy analysis. He has published several articles and participated as speaker at a number of life settlement conferences. Previous to that he operated an investment advisory firm. From 1980 to 1993, he served in several capacities, including President and CEO the CFA Institute (and its predecessor organizations). While at CFA, he founded the continuing education program, was editor of the CFA Digest and supervised research projects funded by the Research Foundation of the ICFA. He began his career as an investment analyst with a Midwest life insurance company. Mr. Bayston has been Chairman of the Martha Jefferson Hospital Foundation ($100 million), a member of the Hospital’s Finance Committee and a past member of the Board of the Institute for Quantitative Research and Finance (Q Group).