Older Americans have seen their debt levels increase sharply over the past two decades, straining seniors’ finances at a delicate time—when they’re preparing to retire or have already entered their golden years. The total debt burden for Americans over age 70 increased 543% from 1999 through 2019, to $1.1 trillion, according to data from the Federal Reserve Bank of New York. Similarly, those in their 60s saw debt, such as mortgages and auto loans, balloon by 471% to $2.14 trillion.
While other age groups also saw their total liabilities increase over that period, the percentage increase experienced by seniors was most pronounced. Seniors have been “disproportionately harmed” by a deterioration in the country’s “modest social safety net,” forcing older Americans to take on debt to make ends meet, according to a 2018 academic study on bankruptcy among seniors.
Why the increase? There are many reasons: Americans have had to assume more individual responsibility for their finances, as employers have gravitated to high-deductible health plans and shifted from pension plans to 401(k) plans. Medical and higher-education costs have soared. Student loan debt for 65-year-olds increased 886% per person between 2003 and 2015, according to the New York Federal Reserve. Increasing lifespans stretch savings and increase the likelihood older Americans will need costly long-term care. Older employees who lose a job typically have a tougher time finding a new one than younger workers, and the work they do find often pays a lower wage.
One in 7 bankruptcy filers is over age 65—a fivefold increase over the past 2½ decades, the researchers found. The increase was so large that the general aging of the U.S. population—10,000 baby boomers reach retirement age every day—can only explain a “small proportion” of the bankruptcy trend, their report said.
However, having debt in retirement isn’t always bad, and some near-retirees or retirees shouldn’t feel they have to rush to pay off those liabilities, according to financial advisors. In fact, doing so may not be the best financial choice. It’s often not harmful to hold certain types of debt, such as mortgages, auto loans and student loans, in retirement since they typically come with relatively low interest rates, said William Goodson, a CFP and financial advisor. Monthly bills are also more predictable from month to month, especially with a fixed-rate loan, than other types of debt.
You can find the full CNBC article here.