Rising debt for older Americans could jeopardize their retirement
A recent report from the Government Accountability Office finds that over the past decade the amount of debt held by older Americans has increased dramatically and could ultimately derail an otherwise well-planned retirement.
According to GAO’s “Retirement Security: Debt Increased for Older Americans Over Time, But Implications Vary by Type of Debt,” the share of older households in debt – as well as the median amount and stress of this debt – were significantly higher in 2016 than they were in 1989.
Based on an analysis of data from the Survey of Consumer Finances (EFC), GAO found that the median amount of debt for older households in debt was about three times as high in 2016 ($ 55,300). than in 1989 ($ 18,900 in real 2016 dollars) and the share of older households with housing, credit card and student loan debt was much higher in 2016 than in 1989.
The GAO was invited by Senator Robert Casey, Jr. (D-PA), chairman of the Special Committee on Aging, and the committee’s rank Republican, Senator Tim Scott (R-SC), to examine trends in Debt Owned by Americans and the Security Implications of Retirement. This report follows a 2019 GAO report that estimated that 20% of older US households aged 55 or older had less than $ 22,000 in income in 2016, and in a 2015 report that about 29% of households older people had neither a retirement savings account (such as a 401 (k)) nor a defined benefit plan in 2013.
While GAO typically offers a set of policy recommendations to address its respective topic of study, this report does not provide any.
Overall, the GAO found that debt, stress, and adverse debt trends varied depending on the demographic and economic characteristics of older Americans, including their age, credit score, and financial status. residence. But breaking down these trends for older Americans in different demographic and economic groups, GAO found that some groups appear particularly vulnerable.
For example, higher proportions of households aged 60 or older had housing debt and credit card debt in 2016 than in 1989, the report notes. Additionally, from 2003 to 2019, people aged 75 to 79 often had higher shares of past due credit card and student loan debt than those aged 50 to 74.
The GAO further notes that during this same period, older people with a credit score below 720 – including those with fair, or good, subprime credit – had median student loans that were over twice as high in 2019 as in 2003.
Low Income Debt Stress
Additionally, while the overall indebtedness and debt stress of older Americans generally decreases with age, those in lower-income households have experienced greater stress on debt, reports GAO.
For example, a higher percentage of low-income households had non-housing debt (including credit card balances, medical debts, and life insurance loans), which may be unsecured or unsecured. have a variable interest rate, and that gap persisted as they got older. These low-income, low-wealth households may be less likely to have a secure retirement because of their debt, the report observes.
Additionally, GAO’s analysis of SCF data found that in 2016, debt stress levels were roughly twice as high for black, Hispanic, and other multiracial households as for white households.
As part of its analysis, GAO also interviewed various experts, who noted that unpredictable health shocks or illnesses could make people in debt particularly vulnerable. In this case, the negative impacts on retirement security may be compounded for the surviving spouse, especially if they have depleted their assets and have more debt than before the health shock. In addition, the negative consequences of the death of a spouse are more likely to affect women, as women tend to live longer than men, the report points out.
Experts further noted that it is too early to assess the retirement security implications caused by the COVID-19 pandemic, in part because provisions of the CARES Act have suspended some debt payments. The GAO notes, however, that, as in past recessions, the pandemic may further reveal the economic fragility of older Americans who, for example, have lost their jobs or cannot work.