Older Adult Debt and Financial Frailty

Published: 2013


Of particular interest in the present economic environment is whether access to credit is changing peoples’ indebtedness over time, particularly as they approach retirement. This project analyzes older individuals’ debt, debt management practices, and financial fragility using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS). Specifically, we examine three different cohorts (individuals age 56–61) in different time periods, 1992, 2002 and 2008, in the HRS to evaluate cross-cohort changes in debt over time. We also draw on recent data from the National Financial Capability Study (NFCS) which provides detailed information on how families manage their debt. Our goal is to assess how wealth and debt among older persons has evolved over time, along with the potential consequences for retirement security. We find that more recent cohorts have taken on more debt and face more financial insecurity, mostly due to having purchased more expensive homes with smaller down payments. In addition, Baby Boomers are more likely to have engaged in expensive borrowing practices. Factors associated with better debt outcomes include having higher income, more education, and greater financial literacy; those associated with financial fragility include having more children and experiencing unexpected large income declines. Thus, shocks do play a role in the accumulation of debt close to retirement. But it is not enough to have resources, people also need the capacity to manage those resources if they are to stay out of debt as they head into retirement.

Key Findings

    • Older Americans on the verge of retirement are more likely to arrive at retirement with debt now than in the past. More than 70% of Baby Boomers held debt compared to a dozen years ago, when 64% held debt.
    • Not only are Baby Boomers more likely to hold debt, but the value of this debt has also grown sharply. Median debt for those age 56-61 has more than quadrupled, from about $6,200 in 1992, to $28,300 in 2008 (in 2012 dollars).
    • A key reason that debt rose so rapidly for Boomers is that this group spent more on housing and took out larger mortgages, compared to earlier cohorts.
    • Higher income, better educated, and more financially literate Baby Boomers are systematically less likely to hold high levels of debt and to be financially fragile. Nonwhite, unmarried, and less healthy Baby Boomers, along with those with children, are more vulnerable.
    • Financially literate individuals are much less likely to report they are overindebted, and they are less vulnerable to shocks.
    • Baby Boomers retiring in the next several years are more likely to carry this debt into retirement, compared to previous cohorts.