Apparently Millennials aren’t the only ones for whom debt can be an impediment to retirement security.
A new report from the nonpartisian Employee Benefit Research Institute (EBRI) cautions that while much of the attention to retirement preparedness focuses on asset accumulation in individual account retirement plans, the debt that may have accrued entering or during retirement can offset any asset accumulations, resulting in lower levels of retirement income security.
Indeed, American families just reaching retirement or those newly retired are more likely to have debt than past generations, specifically those in the 1990s, according to the report. There are mixed messages in the EBRI findings, with both debt levels and debt payments declining between 2010 and 2016, but with more households headed by someone 55 or older having debt.
The report finds that debt levels among the elderly and near elderly have decreased from their peaks in 2010 (from $82,968 to $76.679 in 2016), and debt payments as a percentage of income for this group fell from 11.4% in 2010 to 8.2% in 2016. Moreover, older families’ debt as a percentage of assets declined from 8.4% in 2010 to 6.5% in 2016.
On the other hand, a longer-term trend line shows that a much higher percentage of American families headed by those who are 55 or older have debt: In 1992, just over half (53.8%) of such families had debt, but by 2016 more than two-thirds (68%) did. More significantly, families with the oldest heads are seeing the greatest increases: Since 2007, the proportion of indebted families with heads ages 75 or older increased nearly 60% – from 31.2% in 2007 to 49.8% in 2016.
Housing debt has been the major driver of the level of debt for families with heads ages 55 or older, according to the report. When housing debt increased in 2010 and decreased in 2013 and 2016, the overall debt followed the same pattern. While nonhousing debt has been relatively constant since 2001, the percentage of families with heads ages 55 or older with credit card debt increased in 2016, but the level of credit card debt held remained almost constant, as the median amount was $2,578 in 2013 compared with $2,500 in 2016.
An overarching concern: The percentage of the oldest families – those with heads ages 75 or older – whose debt payments are excessive relative to their incomes is near its highest levels since 1992. Consequently, more families that have elderly heads are placing themselves at risk of running short of money in retirement due to their increased likelihood of holding debt while in retirement.
The data is drawn from the Federal Reserve’s Survey of Consumer Finances (SCF). The full report is published in EBRI’s March 5 Issue Brief, “Debt of the Elderly and Near Elderly, 1992–2016.”
