Debt Close to Retirement and Its Implications for Retirement Well-being
Remaking Retirement? Debt in an Aging Economy. Jointly edited with Olivia S. Mitchell. Oxford University Press, book forthcoming in 2020.
Introduction: Older Americans (age 65+) appear increasingly vulnerable to financial distress in old age, implying that they may not be resilient to sudden financial shocks, such as an unexpected loss of income or an unforeseen increase in expenditures. One indicator of this condition is the substantial increase in borrowing by older households: the Federal Reserve Board (2017) reported that median debt for seniors grew by over 400 percent between 1989 and 2016, and the probability of older households having borrowed rose substantially over time. In our own prior work, we have documented that the percentage of people arriving close to retirement with debt grew from 64 percent in 1992 to 71 percent in 2010 (Lusardi et al. 2018). Moreover, the value of debt held by people on the verge of retirement (age 56-61) also grew sharply: thus, median household debt for this group in 1992 was under $6,800, but by 2004 it had more than quadrupled in real terms. In 2010, it was $32,700, nearly five times the 1992 level (in 2015 dollars). Similar findings are reported by Brown et al. (2020) who show that debt held by borrowers between the ages of 50 and 80 increased by roughly 60 percent from 2003 to 2015, while aggregate debt balances of younger borrowers declined modestly over the same period. In 2015, older borrowers held substantially more of nearly all types of debt than did borrowers in the same age group in 2003. Much of the rise resulted from larger home mortgages, yet other debt including credit card and medical debt also swelled over time (Lusardi et al., forthcoming).
One aspect of this change over time is that some components of debt, such as credit card and other non-collateralized borrowing, charge high interest rates; these in turn can contribute to financial distress in the older population….