What Are the Implications of Rising Debt for Older Americans?

The share of older Americans with debt has been on the rise over the last several decades. Having debt, however, does not always signal financial fragility because debt can be used for various purposes. For example, households that take out a low-interest mortgage to buy a home, which typically appreciates in value, are likely making a savvy choice. In contrast, households that carry unpaid credit card balances could see their debt snowball, leading to financial distress. Identifying these distinctions in household debt situations is crucial to understanding the implications of the rise in debt holding among seniors. This brief, based on a new paper, addresses three key questions: 1) As more older households carry debt in retirement, what share are at “high-risk†and “low-risk†of financial hardship? 2) Is the growth in debt holding driven by the high- or low-risk households? and 3) What are the different types of high-risk households? The answers will help policymakers determine which types of borrowers are most vulnerable and develop tailored solutions for assisting them. The discussion proceeds as follows. The first section provides background on trends in debt holding among older Americans. The second section sorts households into high-risk and low-risk based on their debt and asset profiles, and it shows that high-risk borrowers are driving the growth in debt. The third section identifies four groups of high-risk borrowers with very different characteristics. Given the diverse situations of high-risk borrowers, the fourth section suggests some potential ways to address each group’s specific needs. The final section concludes that the debt burdens of high-risk borrowers are cause for concern, but a one-size-fits-all solution does not exist, so targeted interventions would be most effective.