A Newish And Growing Problem

Poverty rates rose for older Americans in 2021 and it was the only demographic group to experience rising poverty, according to the U.S. Census. Eroding pensions, increases in Social Security’s normal retirement age, and big gaps in access to retirement savings plans at work are causing elderly income security in the United States to fall.

At the same time, on top of their insufficient retirement assets, millions of older adults are grappling with more debt, making their finances quite fragile. Financial fragility is typically measured as the share of debt payments to income. When a household exceeds at least one of four crucial thresholds—a home mortgage loan-to-value ratio above 80%, a ratio of non-housing debt to liquid assets above 50%, rent exceeding 30% of income, or less than 3 months’ worth of income in liquid assets—it is an indication that debt payments are crowding out spending on necessities.

Growing Senior Debt

Older households are more likely to be indebted than they were three decades ago and a typical older household held roughly three times as much debt in 2016 as it did in 1989, adjusted for inflation. The increase in financial fragility is highlighted in the forthcoming Older Workers and Retirement Security Chartbook, a research collaboration between The New School’s Schwartz Center for Economic Policy Analysis and the Economic Policy Institute funded by the RRF Foundation for Aging.

Rising debt has damaged the financial health of older working households and negatively affected their ability to save for retirement and to protect their retirement savings when shocks arise. While the rise in financial fragility in part reflects the mortgage boom of the 1990s and early 2000s, this is just part of the story. Rising levels of credit card balances, auto loans, and student debt also hurt older households’ finances.

Rising Inequality in Financial Security Among Seniors

Over half of lower-income households ages 55-64 were financially fragile before the COVID-19 pandemic, based on their debt burdens, housing costs, and emergency savings. In 1992, about a third of households in this same group were financially fragile. Rising debt hurt older households’ finances in the wake of the Great Recession, though wealthier older households—those in the top 10% of the income distribution—have since recovered the losses they suffered in 2006. Meanwhile, households in the middle and bottom half of the income distribution remain at historically high rates of financial fragility. This means that when shocks like the COVID-19 pandemic hit, these households had less of a financial cushion to soften the blow.

Causes Of Senior Financial Fragility

The causes of increasing indebtedness include credit card and mortgage debt primarily. The percentage of older people with credit card debt is a third higher than it was three decades ago. The median balance is more than $2,500 for individuals ages 50-79. More elders have mortgage debt than ever before, which puts them at risk of default and eviction if payments are missed.

Nearly 1 million people age 65 or older hold student loan debt — a quintuple increase in just 15 years. They are the fastest growing group of student loan debtors and make up the largest share of loan holders in default. Older Black households have seen the fastest increase in student loan debt. The share of Black households ages 55-64 with student loan debt grew five-fold between 1992 and 2019, while the share of Black Americans in this age group with bachelor’s degrees only doubled. The share of households with student debt is almost twice as high for Black households than for white ones.

Medical debt is still a problem even though elders are in Medicare. Using data from the Federal Reserve, we find almost 9% of older people have past-due medical bills which makes them exposed to aggressive debt collection practices.

The RRF Foundation for Aging has issued a call to action to address older adult debt burden and calls on advocates, researchers, service providers, funders and others to get involved with addressing the issue. I agree that more research is needed to focus on questions of good versus bad debt—for example high-risk is bad debt. We need to weigh the evidence about how much “financial literacy” can help, or find ways to improve enforcement against financial predators. It makes sense to say both are needed, but public policy is about priorities and every good lawmaker has to assess where would to spend the first dollar.

Barbara Schuster, ABD, The New School, contributed substantially to this article.