For many older Americans, everyday life is becoming increasingly precarious financially. A major reason: Too much debt.
The numbers are striking. The share of families headed by people 55 and older with debt is up from 54% in 1998 to 68% in 2019, according to the Employee Benefits Research Institute (EBRI). And retirees doubled their debt in 2020, according to the personal finance site, Clever.com.
“Debt is so much more acceptable culturally,” says Jacquette Timmons, a financial behaviorist based in New York City.
The worrisome aspect of debt among older adults largely reflects the nation’s wealth and income economic bifurcation, even before taking into account how the pandemic has further amplified inequalities in livelihood and opportunities.
Debt among the haves is very different from debt among those that have less. People living in wealthier ZIP Codes tend to reduce their debts as they age, note Urban Institute economists Barbara Butrica and Stipica Mudrazija in “Financial Security at Older Ages,” published by the Center for Retirement Research at Boston College.
In contrast, less wealthy older adults with debt experience a substantial increase in loan values relative to their assets, say Butrica and Mudrazija.
Disturbingly, they find that greater indebtedness (mortgages and credit cards) is now most pronounced among people 70 and older. Says Butrica, an Urban Institute economist: “To be carrying debt — significant amounts of debt — at older ages gets riskier and riskier.”
The debt loads for many older adults means “they’re living on the edge,” says Pamela Foohey, visiting professor of law at the Cardozo School of Law.
The risk that debt might turn toxic with age is greatest among certain groups of Americans, including minorities and those with low-wage careers.
Says Odette Williamson, staff attorney at the Boston-based National Consumer Law Center. “Older adults are using credit cards as part of their safety net to purchase medications. Or they just need food and other basic items.”
Older adults living in less-well-off neighborhoods carry debt well into retirement, suggesting they may rely more on debt to support themselves. And older minorities with debt are more vulnerable financially than their white peers, according to the recent EBRI study, “Who Is Most Vulnerable to the Ticking Debt Time Bomb in Retirement.”
Among the striking findings in that report: families with Black or Hispanic heads 55 and older are more likely to have consumer debt (car loans, personal loans and credit cards) than housing debt. Housing debt however, offers the potential for building wealth.
Families with older minority heads of household, EBRI said, were more likely to have debt payments accounting for more than 40% of their income.
“For older adults of color, the financial stress is rather intense,” says Williamson.
Another sign of debt stress among older Americans: their rising bankruptcies. One in eight bankruptcy filers is now 65 or over. That’s nearly a fivefold increase in just 2 ½ decades, according to the authors of “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society.”
The main reasons older people now file for bankruptcy are declining incomes and steep medical expenses. Bankruptcy lets them discharge debts while staying in their home. Says Foohey, one of the paper’s co-authors, “They really want to keep the home.”