URBAN
INSTITUTE
Older Americans’
Economic Security
Program on Retirement Policy
Number 33, January 2013
Is Household Debt Growing for Older Americans?
Nadia Karamcheva
The well-known decline in the nation’s savings rate has
raised concerns about retirement income preparedness.
Household debt skyrocketed in recent decades and appears
to have affected adults of all ages.1 As a result, an increasing
number of Americans are entering old age with outstanding
debt, forcing many retirees to devote some income to servicing their debt and leaving them with less to cover daily
living expenses.
This brief reports changes in the average debt holdings
of Americans ages 65 and older, using Health and Retirement Study (HRS) data from 1998 to 2010. Results show
that the share of older adults with outstanding debt began
rising even before the Great Recession, and the inflationadjusted value of debt has been growing. Overall, individuals in or near retirement are more leveraged today than in
the past.
What Percentage of Older Individuals Have Debt
and How Much Do They Owe?
Between 1998 and 2010, the share of adults ages 65 and
older with some debt increased from 30 to 43 percent
(figure 1). Moreover, the median value of outstanding debt
grew 56 percent over the same period. In 2010 half of indebted adults ages 65 and older had outstanding per person
household debt of $21,000 or more.2
What Is the Main Component of Debt?
Mortgages are the most significant type of debt at older ages, accounting for about half the value of all debt held by
adults ages 65 and older. Although that share has remained
constant since the late 1990s, the portion of older adults
with an outstanding mortgage increased significantly, from
16.2 percent in 1998 to 23.1 percent in 2010. Additionally,
Figure 1. Household Debt for Adults Ages 65 and Older, 1998–2010
Source: Author’s calculations from the Health and Retirement Study, 1998–2010.
Note: Dollar amounts are expressed in 2010 real dollars, adjusted by the change in the consumer price index.
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Figure 2. Average Leverage Ratio for Adults Ages 65 and Older, 1998–2010
Source: Author’s calculations from the Health and Retirement Study, 1998–2010.
Notes: The top 0.5 percent of the sample with the highest leverage ratios was excluded from the calculation.
for mortgage holders, the median per person value of the unpaid mortgage nearly doubled, to $51,000 in 2010. As a result, older homeowners owned a smaller share of their homes
outright in 2010 than in 1998 ( 8 7 versus 9 3 percent). These
trends suggest that a growing number of older Americans will
still be paying off their mortgages in retirement, potentially
leaving them with less income to meet other living expenses.
Are Households Becoming More Leveraged? The absolute value of debt tells only part of the story, however. A better comparison of household debt over time can
be made by computing household leverage ratios, defined
as total household debt divided by total household assets.
This ratio shows how significant debt holdings are relative
to total wealth.
The average leverage ratio for adults ages 65 and older
more than doubled between 1998 and 2010. In 2010, household debt consumed 13 percent of their total assets, up from
6 percent in 1998 (figure 2). The shrinking of household
wealth during the 2008 financial crisis and Great Recession
likely accounts for part of this increase but not all, as household leverage ratios had been rising a decade earlier.
Debt trends for those at even older ages are more worrisome. In 2010, 12.4 percent of Americans ages 75 and older had an outstanding mortgage and 29.6 percent held
some type of debt. The average leverage ratio for this group
reached 8 percent in 2010, up from 3 percent in 1998. Discussion
Debt is not inherently bad. The standard economic model of
consumption predicts that individuals smooth expenditures
over their lifetimes, which often involves borrowing and
accumulating debt when young, saving and paying off debt
in midlife, and decumulating wealth when old by spending
Social Security or private pension benefits and financial
assets. However, the growing debt in retirement suggests
that more Americans will need to devote part of their retirement income to servicing their debt, leaving fewer resources
to meet daily needs. Additionally, high debt service obligations relative to income leave households more exposed to
unexpected negative income shocks such as the onset of an
expensive medical condition or the death of a spouse.
Acknowledgments
The author is thankful to Richard Johnson for valuable comments and
suggestions. All errors are my own.
Notes
1. For data on personal saving rate and household debt over time, see Federal
Reserve Bank of St. Louis (2013a, b).
2. The HRS collects wealth and debt information on a household level. To
keep the analysis comparable between couples and single individuals, we
define the variables on a per person basis, which involves division by 2
for those households where the respondent indicated that he or she belonged to a couple.
References
Federal Reserve Bank of St. Louis. 2013a. “Personal Saving Rate.” http://
research.stlouisfed.org/fred2/series/PSAVERT. (Accessed January 4, 2013.)
———. 2013b. “Household Sector: Liabilities: Household Credit Market Debt
Outstanding.” http://research.stlouisfed.org/fred2/series/CMDEBT.
(Accessed January 4, 2013.)
About the Author
Nadia Karamcheva is a research associate in the Income and Benefits
Policy Center at the Urban Institute.
Copyright © January 2013. The Urban Institute. The views expressed are those of the authors and do not necessarily reflect those of the Urban Institute, its board, its sponsors, or other authors in the series.
Permission is granted for reproduction of this document, with attribution to the Urban Institute.