Rising Senior Debt Levels are Concerning Researchers

While more seniors today are embracing more active lifestyles and generally working longer, academics conducting research into the lives of modern older Americans are also recording an increasing trend in seniors’ embrace of debt, which has both financial consequences while also raising mental health concerns.

“The median total consumer debt of households headed by someone 65 or older in 2016 ($31,300) was 2 ½ times what it was in 2001 and nearly 4 ½ times the level in 1989,” writes Chris Farrell, senior economics contributor for American Public Media’s Marketplace in a piece at NextAvenue. “Some 60% of 65+ households carried debt in 2016, up markedly from about 42% in 1992. Credit card debt and student loans have increased [among seniors], too.”

These increasing financial concerns among seniors are also taking a toll on their mental health, according to a new research paper titled “Debt Stress and Mortgage Borrowing in Older Age: Implications for Economic Security in Retirement” presented at the Retirement and Disability Research Consortium, in Washington, D.C.

“Debt-related stress is a growing concern, given the growing amount of debt held by older adults as they enter retirement,” the authors of the paper write.

One of the reasons behind this increasing trend could be that seniors seem confident that they’ll have an income stream well into their retirement years, Farrell says.

“The debt partly reflects confidence among near-retirees and retirees that they’ll continue earning an income during retirement, allowing them to pay the interest due,” he writes. “The economics behind their increased borrowing also largely mirrors the broader debt binge by consumers of all ages to pay for the rising cost of big-ticket items like cars, homes and college.”

The recent work of other researchers also assigns different stress levels to different kinds of debt, which translates into certain debt types having a greater impact on seniors’ desire to delay retirement in order to maintain their income in later years.

Researchers Donald Haurin, Cäzilla Loibl and Stephanie Moulton at Ohio State University helped to assign what Farrell calls a “hierarchy of debt” in terms of stress, with credit card debt being the most stressful type that has a greater impact on older adults working longer.

“Stress resulting from a $1 increase in credit card debt, they said, is the equivalent of stress due to a $14 to $20 increase in mortgage debt,” Farrell observes. “And second mortgages (home equity loans and lines of credit) are more stressful than first mortgages, they noted.”

The findings of these studies suggest a strategy for seniors that involves prioritizing the most stressful debts to pay off first, Farrell says.

“In other words, if you’re in your 50s or 60s, try to direct cash flow to eliminating credit card debt and second mortgage debt. And if these debts are significant enough to affect retirement decisions, getting rid of them should make a big difference to your future economic security,” Farrell writes.

Read the full article at NextAvenue.

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