Older persons today appear more likely to enter retirement in debt than in past decades, according to a working paper from the National Bureau of Economic Research.
The NBER paper – Debt and Financial Vulnerability on the Verge of Retirement – is co-written by Annamaria Lusardi, Olivia S. Mitchell and Noemi Oggero.
While the massive debt run-up by American households has been noted in a number of previous studies, far less work has been done evaluating older Americans’ debt pattern or the determinants of indebtedness close to retirement.
The paper, which analyzed older individuals’ debt and financial vulnerability using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS), finds that recent cohorts have taken on more debt and face more financial insecurity, mostly due to having purchased more expensive homes with smaller down payments.
The paper examines three different cohorts (individuals age 56–61) in 1992, 2004, and 2010 to evaluate cross-cohort changes in debt over time. The paper defines these three cohorts as the “HRS baseline” cohort, which was born 1931–1941; the “War Babies” group, which was born 1942–1947; and the “Early Boomer” group, which was born 1948–1953.
The percentage of people age 56–61 arriving at the verge of retirement with debt rose from 64% in the HRS baseline group to 71% among Early Boomers, according to the paper’s findings.
Additionally, the value of debt held rose sharply over time.
While the median amount of debt in the baseline group was about $6,800, it more than quadrupled among War Babies and almost quintupled among Early Boomers (respectively $31,200 and $32,700, all in 2015 dollars).