Why do so many Americans resist saving for retirement? The fact that more than one in 10 expect to die in debt doesn’t help.
A survey released May 6 by Northwestern Mutual found that among people who have debt, as much as 33% of their monthly income goes to paying it down, and 13% don’t think they ever will.
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Nearly 60% of respondents said their debt prevents them from taking steps toward long-term financial security, including 29% who say they haven’t been able to save for retirement, the survey found.
With COVID-19 mitigation cutting investors’ income or jobs, the number of Americans pressured by debt and delaying retirement will likely grow.
“As COVID-19 continues to have far-reaching economic effects on people’s daily lives, and the full scope of its impact comes more into focus, it’s reasonable to expect these numbers will increase as people start to rely more heavily on credit in order try and adapt to their new normal,” Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual, said in a statement.
Credit cards are the biggest source of debt for Americans, the study found, and more than half of credit card debt holders use them for necessities like rent, groceries or utilities—a bad sign for people trying to stay afloat during the pandemic.
The survey found some bad credit card habits, indicating opportunities for education that focuses on establishing long-term financial priorities and preventing obstacles to achieving those goals. A third of survey respondents are paying interest rates over 15% and 30% only pay the minimum payment.
“Establishing credit and using it sensibly is a common and effective tool to help manage a long-term financial plan, but it’s critical for people to understand the implications of accumulating debt,” Mitchell said. “On the long road to financial security, mounting debt can add winding and circular detours.”
Northwestern Mutual conducted its survey in February, before most states started issuing stay-at-home orders that resulted in many businesses cutting staff. At that time, Americans had an average $26,621 in debt, down from $29,800 in 2019 and just over $38,000 the year before.
“Financial security and planning can be a challenging road to navigate even in the best of times, but during economic hardships and volatility, debt can add even more obstacles,” Mitchell added. “As many people are taking the time in the current environment to reevaluate their financial situation, it is prudent to include debt in that calculation.”
Danielle Andrus works as an editor for The Financial Planning Association® (FPA®). Over the past 15 years, she has worked in various capacities, including writing and editing. Andrus has worked for several notable publications and outlets and spent more than seven years as the executive managing editor at ALM Media, publisher of Investment Advisor magazine and ThinkAdvisor.com. Before that, she was online editor for Summit Professional Networks, where she oversaw newsletter development for four magazines, including Benefits Selling, Senior Market Advisor, Boomer Market Advisor, and Bank Advisor.
