55+ demographic exhibits increasing burdenNew research from the Employee Benefit Research Institute (EBRI). Visit here.
A new study by the Employee Benefit Research Institute (EBRI) examines the debt of the older American families, and notes that despite some recent improvements, families with heads ages 55 or older have experienced a long-term trend of increased debt.
“Debt of the Elderly and Near Elderly, 1992–2016” examines data from the Federal Reserve’s Survey of Consumer Finances (SCF) to determine trends in debt among older American families with heads ages 55 or older.
On the positive side, the analysis shows that:
- Debt levels among elderly and near elderly have decreased from their peaks in 2010. The average debt amount for families with heads ages 55 or older was $82,968 in 2010, but this amount stood at $76,679 in 2016 (both amounts in 2016 dollars)
- Debt payments as a percentage of income for this group fell from 11.4 percent in 2010 to 8.2 percent in 2016
- Older families’ debt as a percentage of assets declined from 8.4 percent in 2010 to 6.5 percent in 2016
At the same time, a longer-term trend line shows that a much higher percentage of American families with heads ages 55 or older have debt: In 1992, 53.8 percent of such families had debt; by 2016 that reached 68.0 percent. And 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 percent (from 31.2 percent in 2007 to 49.8 percent in 2016).
Debt impedes retirement-readiness
“While improving in many respects in the most recent years, the longer-term trends in debt are troubling as far as retirement preparedness is concerned,” says Craig Copeland, Senior Research Associate at EBRI. “We see in the data that American families just reaching retirement or those newly retired are more likely to have debt than past generations, specifically those in the 1990s.”
Copeland also noted the fact that families with heads ages 75 or older whose debt payments are excessive relative to their incomes is near its highest levels since 1992. “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,” he concludes.
Excerpts from ‘Debt of the elderly…’
While the percentage of families with heads ages 55 or older with any debt increased from 2010 to 2016, the average total debt level decreased from 2010 to 2016–$82,968 (2016 dollars) to $76,679 in 2016. At the same time, the median debt level of those with debt moved from $61,219 to $47,800 (Figure 3). 4 This was a real decrease in the average and median debt levels of 7.6 percent and 21.9 percent, respectively, from 2010. 5,6 These debt levels differed significantly across various family characteristics.
Families with younger or more educated family heads, higher incomes (with the exception of families with less than $10,000), and higher net worth had significantly higher average and median debt levels. Appreciably higher average levels of debt were also seen in families with heads who were working, white, or married.
For example, in 2016, among those with debt, families with heads ages 55–64 had a median debt of $68,300, compared with $20,900 for families with heads ages 75 or older. While there was an overall decline in the average debt level from 2010 to 2016, the average debt level of various categories of elderly and near elderly families had both increases and decreases. For example, the average debt of families with heads ages 75 or older increased from $30,288 in 2010 to $36,757 in 2016, compared with a decrease from $78,319 to $65,686 for families with heads ages 65–74. The median debt levels for those families owning debt decreased overall and for each category from 2010 to 2016.
Debt payments attributable to housing debt were the source of much of the changes in total payments since 1992, while the nonhousing (consumer) debt payment share has been much more stable . The share of income that went to housing debt payments increased from 5.5 percent in 2001 to 8.3 percent in 2010 before declining to 7.0 percent in 2013 and to 5.7 percent in 2016. Nonhousing debt payments as a percentage of income trended downward from the 1990s to 2016, but the movement was in a much smaller range than for the housing debt payments, going from a high of 4.2 percent in 1998 to 3.1 percent in 2007 and to 2.5 percent in 2016.
Furthermore, across age groups in each year the nonhousing debt was consistent except for the ages 75 or older group in the earlier years, where the nonhousing debt was much lower. In contrast, the housing debt percentages were lower among each successive age group. For example, in 2016, the percentage of income represented by housing debt payments was 6.5 percent for families with heads ages 55–64, compared with 4.0 percent for families with heads ages 75 or older. Excessive Debt Levels Looking at the average debt payment as a percentage of income does not generally reveal how many families are in difficult situations with debt, because the average can mask a wide distribution of family circumstances. A threshold commonly used for determining a problem with excessive debt is when family debt payments exceed 40 percent of income.
By that standard, the percentage of families with excessive debt decreased in 2016, reaching its lowest level since 1995. Specifically, the proportion of elderly and near elderly families surpassing this threshold increased from 2007 to 9.2 percent in 2013 before dropping to 6.9 percent in 2016, while the 1995 level was 5.6 percent.
The increase from 2004–2007 was a result of the surge in families with heads ages 55–74 whose debt payments were above the 40-percent threshold, while families with heads ages 75 or older experienced a decline in the percentage with debt payments above this threshold. In contrast, the change from 2007–2010 was the result of declines in the proportion above the 40-percent threshold among those with heads ages 55–74, while the percentage with these high debt payments increased for the families with heads ages 75 or older, rising to 4.9 percent in 2010 from 4.3 percent in 2007.
However, in 2013, the percentage with debt payments above the 40- percent threshold increased across each age group. While the overall percentage decreased in 2016, the percentage with debt payments greater than 40 percent of income for families with heads ages 75 or older increased in 2016. In each year of the study, the share of families with debt payments above 40 percent of income was lowest for those families in the highest-income quartile . Except for 1998 and 2007, the next lowest was for families in the third income quartile. Furthermore, the proportion of families above the 40-percent threshold was highest for families in either the first or the second income quartile, except in 1998 where families in the third quartile had the highest level.
The full report is published in the March 5 Issue Brief, “Debt of the Elderly and Near Elderly, 1992–2016,” and is available online here.
The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which include a broad range of public, private, for-profit and nonprofit organizations. For more information go to www.ebri.org