The Life-Cycle Hypothesis posits that pre-retirees should be at their peak earnings potential, maximizing savings, and reducing liabilities at this stage of life (Ando & Modigliani, 1963). Yet, the indebtedness of pre-retirees has increased at an alarming rate (Anguelov & Tamborini, 2010; Butrica & Karamcheva, 2013). Even more troublesome, while numerous individuals are comfortable with the usage of credit cards and other forms of borrowing, a limited number of consumers possess fundamental knowledge regarding debt. Poor financial decision-making appears to be a prevailing occurrence, with considerable consequences, that often goes unnoticed until a point of crisis is reached (Gerardi, Goette, & Meier, 2010; Hung, Parker, & Yoong, 2009; Lusardi,
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The impact of debt on the accumulation of retirement wealth has not been examined to the extent of other retirement adequacy variables, yet the topic of debt is just as significant in determining retirement preparedness. Scholars have examined debt holdings and patterns of debt for near-retirees and the likelihood of having adequate retirement wealth (Anguelov & Tamborini, 2009; Lee, Lown, & Sharpe, 2007; Li, Montalto, & Geistfeld, 1996; Lusardi & Mitchell, 2013; Yuh, Montalto, & Hanna, 1998). The findings of the research suggest that having high levels of debt near retirement may affect how much money is saved for retirement and the longevity of accumulated assets earmarked for later stages of life. Debt being serviced by a pre-retiree at retirement will likely offset accumulated assets, resulting in a lower level of retirement preparedness (Copeland, …show more content…
The research indicates that the absolute and relative value of debt among adults of retirement age, 62 to 69, has been increasing (Butrica & Karamcheva, 2013). The challenge with this trend is that numerous older adults fail to understand key financial concepts and this group often has difficulty understanding loans, particularly mortgages and credit card agreements. The reason for this condition correlates to the lack of competency in real-life economics and the absence of financial literacy (Lusardi & Mitchell, 2011; Normann & Reinhkard-Maack, 2012). Moreover, research using the 1992, 2002 and 2008 Health and Retirement Study indicates that recent cohorts have taken on additional debt, increase the likelihood of engaging in expensive borrowing practices, and face increased financial insecurity, mostly due to having purchased expensive homes with smaller down payments (Lusardi & Mitchell, 2013). The level of increasing debt coupled with a lack of understanding of how credit works indicates that various forms of debt will have a negative influence on saving for retirement. Furthermore, this indicates that consumer debt may impact how long a person works or extends their planned retirement
The impact of debt on the accumulation of retirement wealth has not been examined to the extent of other retirement adequacy variables, yet the topic of debt is just as significant in determining retirement preparedness. Scholars have examined debt holdings and patterns of debt for near-retirees and the likelihood of having adequate retirement wealth (Anguelov & Tamborini, 2009; Lee, Lown, & Sharpe, 2007; Li, Montalto, & Geistfeld, 1996; Lusardi & Mitchell, 2013; Yuh, Montalto, & Hanna, 1998). The findings of the research suggest that having high levels of debt near retirement may affect how much money is saved for retirement and the longevity of accumulated assets earmarked for later stages of life. Debt being serviced by a pre-retiree at retirement will likely offset accumulated assets, resulting in a lower level of retirement preparedness (Copeland, …show more content…
The research indicates that the absolute and relative value of debt among adults of retirement age, 62 to 69, has been increasing (Butrica & Karamcheva, 2013). The challenge with this trend is that numerous older adults fail to understand key financial concepts and this group often has difficulty understanding loans, particularly mortgages and credit card agreements. The reason for this condition correlates to the lack of competency in real-life economics and the absence of financial literacy (Lusardi & Mitchell, 2011; Normann & Reinhkard-Maack, 2012). Moreover, research using the 1992, 2002 and 2008 Health and Retirement Study indicates that recent cohorts have taken on additional debt, increase the likelihood of engaging in expensive borrowing practices, and face increased financial insecurity, mostly due to having purchased expensive homes with smaller down payments (Lusardi & Mitchell, 2013). The level of increasing debt coupled with a lack of understanding of how credit works indicates that various forms of debt will have a negative influence on saving for retirement. Furthermore, this indicates that consumer debt may impact how long a person works or extends their planned retirement