This common delusion can wreck your lifestyle in retirement

Many boomers think they’ll retire debt-free, but that’s not likely to be their reality.

More than eight in 10 middle-income Baby Boomers – with an annual household income between $25,000 and $100,000 and less than $1 million in investable assets – now has at least some debt, according to a survey released Tuesday by insurance firm Bankers Life Center for a Secure Retirement. That finding was mirrored by a study from the nonprofit think tank Pew Research Center, out last year, showing that 80% of boomers had debt and the median amount was a little over $70,100.

And many boomers have more debt than ever: The average 65-year-old borrower now holds 47% more mortgage debt and 29% more auto debt than a 65-year-old did in 2003, according to inflation-adjusted data from the Federal Reserve Bank of New York released in February of last year.

And yet, many average boomers engage in this common delusion: That they’ll retire debt-free. More than half (53%) of non-retired, middle-income boomers say they plan to retire without debt, the Bankers Life data shows.

But the reality will likely be quite different. For one, middle-income boomers “have too much debt to be able to completely eliminate it before retiring,” says Scott Goldberg, the president of Bankers Life. Indeed, more than one in four (28%) now devote over 40% of their monthly income to debt, and about one-quarter (23%) have a mortgage with more than 20 years remaining, the data showed. (Some experts say that debt payments should take up no more than 10% of your income.)

Furthermore, data from current retirees show that it’s unlikely boomers will pay their debt down before retiring. Indeed, fewer than one in four retirees say they are debt-free, according to Bankers Life.

Of course, having some debt in retirement isn’t always a bad thing, as MarketWatch columnist Robert Powell discusses here, and plenty of retirees eventually pay off the debts they carry into retirement. (Pew data shows that only about 58% of the members of the Silent Generation, most of whom are retired, have debt – the lowest percentage of any generation.)

Still, all this debt is likely to put a crimp into the free-wheeling, traveling-often retirement lifestyle that many boomers say they want. “Debt is a financial obligation that limits financial freedom for boomers to live the retirement they expect and want,” says Goldberg. “As boomers retire, every dollar that they spend to pay off debt is one less dollar that they can spend on these new retirement activities.”