Older Americans today have larger levels of debt than those of past generations, and seniors are among those hardest hit, according to research from the Employee Benefit Research Institute (EBRI).
While the percentage of indebted families headed by individuals age 55 or older remained steady from 2007-2010—rising only 0.4% during that time frame—families headed by 75 year olds experienced the most increases in debt levels during these years.
In 2010, the average debt level for these older families rose to $27,409, with 38.5% of such households living with debt.
Of all the components that contributed to rising debt levels among all seniors, the study notes housing as a major factor for older families.
Families headed by 75-year-olds paid 4.7% of their income toward a housing debt in 2010, paying a little more than they did six years ago.
These households had not only increases in average amount of debt, but were the only group in the survey that paid larger shares of their income toward debts.
A common threshold used for determining a problem with excessive debt, according to the research, is when family debt payments exceed 40% of income.
In 2010, just under 5% of these families fell under this category.
That said, 75-year-old headed households stand at more financial risk for their retirement security than younger households, since younger families have more time to work and accumulate income.
“The debt results are troubling as far as future retirement preparedness is concerned, in that the data indicate that American families approaching retirement or newly retired are more likely to have debt—and higher levels of debt—than past generations,” said Craig Copeland, senior research associate at EBRI.
Retaining housing debt at an older age may even carry serious implications for seniors looking to use retirement assets that utilize home equity, such as reverse mortgages.
“Older families that have taken on higher housing debt may well eventually have difficulty avoiding a major lifestyle change in living standards in retirement, certainly if they are planning to rely on their home as an income producing asset.”
Written by Jason Oliva