LegiStorm

Summary:

In the past three decades, debt has grown substantially among older Americans. The increase in debt among older Americans has raised concerns about financial security for people near or during retirement, not only because Americans aged 65 and older represent a large and growing proportion of the U.S. population, but also because increases in household debt might require retirees to devote a larger share of their fixed income from Social Security, pensions, or government subsidies toward paying debt. Older people also tend to have limited ability to adjust their labor supply to offset higher monthly debt obligations. Excessive debt payments may put more seniors, especially those living on limited incomes, at greater risk of financial insecurity. According to the Survey of Consumer Finances (SCF), the percentage of elderly households (i.e., those headed by individuals aged 65 and older) who held any debt increased from 37.8% in 1989 to 61.1% in 2016. During the same time, the median debt among elderly households with debt increased from $7,463 to $31,050 (in 2016 dollars), and the real average debt increased from $29,918 to $86,797 (in 2016 dollars). The median debt lies at the middle of the debt distribution, and the average debt is generally higher than the median debt because a relatively small percentage of people have very high debt. Between 1989 and 2016, growth in average household debt among elderly households with any debt largely resulted from mortgages, including growth in average debt secured by a residence (from $12,970 to $57,943 in 2016 dollars) and average debt for other residential properties (from $2,970 to $11,446 in 2016 dollars). Some researchers speculate that much of the growth in debt among elderly households through 2007 might have resulted from the increased availability of mortgage credit, whereas others argue that tightening underwriting standards on mortgage debt in the wake of the financial crisis have slowed mortgage originations among young borrowers, which consequently resulted in a shift of new mortgage originations toward older borrowers. Residential loans are usually considered to be long-term wealth builders, as the residence's market value may increase over time, and some researchers find that they are much less stressful to older people than other debt, such as credit card debt. However, some others also argue that households headed by individuals aged 65 and older held historically high levels of housing debt in 2016, which might expose them to greater vulnerability to housing market shocks than elderly households in previous cohorts. The change in debt among elderly households from 1989 to 2016 varied by age groups and asset levels. For example, the largest growth in the share of elderly households who have any debt was for those headed by individuals aged 75 and older. In terms of asset levels, households in the middle of the total asset distribution had the largest growth in the holding of any debt. Much of the change in debt among elderly households on average was well balanced by their assets. To measure the extent to which a household is burdened by debt, researchers and policymakers usually refer to the debt payments-to-income ratio and the total debt-to-asset ratio. Among elderly households with debt, the debt payment-to-income ratio increased from 8.7% in 1989 to 12.4% in 2016, and the debt-to-asset ratio increased from 5.1% to 9.0% during the same time. Both ratios peaked in 2010, the year after the recent economic recession, and then decreased from 2010 to 2016. The debt burden increased more rapidly for certain types of elderly households between 1989 and 2016. The debt-to-asset ratio among households headed by individuals aged 80 and older increased by 5 percentage points during this time. Likewise, the ratio among elderly households in the middle of the total asset distribution increased by more than 10 percentage points during the same time.