Personal debt: It’s delaying 20% of Americans from saving for retirement

There are not many of us who don’t have to deal with debt in some form or another. There are such things as good debt and bad debt but Americans are feeling the pinch of a volatile economy in the midst of inflationary numbers not seen in two generations.

But heading into 2022, Americans actually saw their average debt, excluding mortgages, decline for the past three years to $22,354. “While the past three years paint a clear picture of declining debt levels in America, economic conditions have changed measurably since the start of this year,” says Rob Hayworth, Partner/Private Wealth Advisor with Summit Financial Group, Northwestern Mutual Private Client Group in Fort Wayne, Indiana. “Inflation is rising at the fastest pace in decades, which has created the need for many Americans to dig into their savings and/or take on more debt in recent months.”

“That said, we were highly encouraged to see that many people have been chipping away at their debt for the last several years and are optimistic that, despite the challenges people are facing in the short term, they will continue to remain committed to paying down debt in the long run,” he added.

Despite the trend downwards, Americans have been forced to “hit pause” on other needs in order to service that debt. For example, 20% of those surveyed in the Northwestern Mutual’s 2022 Planning & Progress Study says they have delayed saving for retirement. Also, between saving money and paying down debt, 57% of people prioritize paying down debt versus 43% who put saving first.

Also, 54% — more than half of the people surveyed – say debt is having a substantial or moderate impact on their ability to reach financial security, and many Americans expect to stay in debt a long time (1-5 years – 43%; 6-10 years – 20%; 11-20 years – 12%; rest of my life – 12%; don’t know – 13%).

Having a financial plan in place

“Everyone’s financial situation is different, but debt can serve an important and helpful purpose within a holistic financial plan – so long as it is managed responsibly,” says Hayworth. “That said, if your debt levels compromise your ability to save, generate income or invest in the future, it can create a serious drag on your finances and negatively impact your long-term financial security.”

“Having a financial plan in place is crucial to avoiding this slippery slope. If you’re concerned about your debt load, working with a financial professional can be a good place to start. An advisor can help you set up and manage a plan that takes into account your full financial picture so you can avoid runaway debt.”

Excluding mortgages (18%), the number one source of personal debt is credit cards (20%). Car loans, personal education loans, educational expenses for children/family, and home equity loans or lines of credit are all below 10% for those surveyed.

“Employers looking for ways to help their employees develop healthy financial habits, such as paying down debt, saving for retirement and boosting overall financial wellness, should consider offering benefits that map to these specific goals,” noted Hayworth. “For example, employer-sponsored retirement plans such as a 401(k) are important vehicles for savers to reach their retirement savings goals, especially as our study found only 56% of Americans today say Social Security will be there when they need it. Putting the right financial tools and resources in place for your employees can go a long way to boosting their long-term financial security as well as their overall satisfaction at the workplace.”