Noting that financial liabilities are a vital but often ignored component of retirement income security, researchers at the Employee Benefit Research Institute recently published the results of an analysis showing that while debt levels among families headed by an individual aged 55 or older appear to have eased since the financial crisis, the debt burdens of older households have been increasing overall since the early 1990s.
The results of the study, "Debt of the Elderly and Near Elderly, 1992-2016," are based on an examination of data from the Federal Reserve's Survey of Consumer Finances. The aim of the study, published in early 2018, was to identify trends in debt among older American families with a head aged 55 or older.
The analysis also looked separately at debt levels among near-elderly families, defined as those with a head aged 55-64; and among elderly families, defined as those with a head aged 65 or older.
The study found that debt levels among elderly and the near-elderly families reached their highest levels in 2010, and declined thereafter. The results indicated that the average amount of debt of families with a head aged 55 or older was $76,679 in 2016, down from $82,968 in 2010 (in 2016 dollars).
Moreover, among these older families, debt as a percentage of income decreased from 11.4% in 2010 to 8.2% in 2016, and debt as a percentage of assets declined from 8.4% in 2010 to 6.5% in 2016.
The Trend Line is Troubling
However, the analysis also uncovered a longer-term increasing trend line in the share of families with a head aged 55 or older with debt, from 53.8% in 1992 to 68.0% in 2016. The results further indicated that between 2007 and 2016, the share of families with a head aged 75 or older who were carrying debt increased sharply, from 31.2% to 49.8%.
In addition, the research found that while the overall percentage of families with a head aged 55 or older with debt payments in excess of 40% of income (a threshold commonly used to determine whether a family has an issue with debt) declined from a peak of 9.9% in 2007 to 6.9% in 2016. Further, the percentage of families with a head aged 75 or older with debt payments in excess of 40% of income increased from 4.3% in 2007 to 5.3% in 2016.
Housing Debt is the Culprit
An examination of the types of debt held by older households showed that housing debt drove the changes in debt payment levels from 2001 to 2016, while the consumer debt payment share of income was relatively stable over that period. The findings indicated that between 1992 and 2016, housing debt payments of older families were one to three times larger than their non-housing debt payments. However, the analysis revealed that for these older households, housing debt payments as a percentage of income were lower in 2016 (5.7%) than in 2010 (8.3%) and 2013 (7.0%).
Thoughts from a Financial Planner
While some aspects are improving, the longer-term trends in debt among seniors are troubling as far as retirement preparedness is concerned. Call me so you’re prepared.
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