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What's Hurting the Financial Security of Older Americans?

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Adults age 70 and older have increased their debt since the Great Recession — largely due to mortgage payments — and this hampers their ability to overcome “negative events” as they age, according to a recent study by the Center for Retirement Research of Boston College.

Researchers Barbara A. Butrica and Stipica Mudrazija looked at how financial security changes as people near retirement, outlining reasons for debt and noting that “substantial debt burdens can make retirees less financially resilient to various shocks common at [older ages], such as catastrophic health events or death of a spouse.”

Their key findings include the following:

  • Overall, Americans age 50 and older have lowered their debt since the Great Recession;
  • However, this trend “masks” the increased indebtedness of adults age 70 and older, mainly due to mortgages; plus, their financial health — measured by credit scores and the capacity to borrow — has worsened over time;
  • Socioeconomic factors matter; in other words, those living in poorer Zip codes carry more debt into retirement than those who live in wealthier areas;
  • Credit card debt is more highly correlated with periods of poor credit; for those 70 and older, credit card debt have been their largest source of non-mortgage debt.

Debt Factors

The study also highlights the fact that older Americans have increased their indebtedness “dramatically” over time, particularly due to “policies encouraging homeownership, the proliferation of credit cards and an explosion in the costs of medical care and higher education.”

Mortgages have been the main source of debt in older Americans, the authors state. In fact today’s older Americans are more likely to have an outstanding mortgage — as well as larger mortgages that they’ve been paying back over longer periods of time — than previous generations.

Other sources of debt for older Americans include credit cards, medical bills and student loan debt.

In fact, as of 2020, adults age 50 and older hold 22% of $1.5 trillion in student loans. This represents 7% of total debt for those 50-59, 4% of total debt for those 60-69, and 2% of total debt for those 70 and older, according to the Federal Reserve Bank of New York.

The study also reveals that heavier debt burdens are likely to result in “more hardship” for today’s older retirees. However, those “less well off” retirees are increasingly vulnerable to both personal financial and economic shocks.

About one third of individuals the pre-boomer generation reports that they have struggled financially following a shock, while the same is true of over half of the baby boomers.

Consequently, older adults are increasingly likely to default on their debt and fall into bankruptcy, the study states.

Other Effects

Debt also affects older adults by delaying retirement and hurting their heath. Indeed, “studies tied financial strains and indebtedness to poorer mental health outcomes, such as depression and other common mental disorders, and with elevated stress levels and hypertension,” according to the report.

COVID-19 also has weighed on debt, since people are more apt to use credit cards during the crisis, especially those who have lost jobs due to the pandemic.

The authors state that the rise in debt is “especially concerning” because the chances of having a negative event — such as health problems, losing a job or becoming widowed or divorced — “can have serious negative effects on retirement savings.”

Also two-thirds of those age 70 or older experience such a negative event during their lifetimes, with high levels of debt likely to “exacerbate” these issues, they state.

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