Cecily O'Connor
RedwoodAge.com
For older Americans scaling rising debt mountains, it's the heap of housing payments that are hardest to climb, according to a new study.
The biggest increase in housing debt is occurring among families headed up by individuals aged 65 to 74, according to the Employee Benefit Research Institute (EBRI), which used data from the Federal Reserve's Survey of Consumer Finances to determine debt levels.
Their debt rose to $69,000 in 2007 from $56,013 in 2004, representing a 23 percent jump. Among boomers, a greater share is carrying housing debt, but the amount they owe is heading slightly lower. Individuals between 55 and 64 needed to repay $85,000 in 2007, down nearly 7 percent from $91,159 in 2004.
Although rising debt levels overall are not necessarily a sign of danger for older families - especially if they are also high-income - rising housing debt is of particular concern, since housing typically is the major asset older families have, according to the study. The sharp increase was due to many homeowners refinancing their mortgages, cashing out equity in their home, or facing rapidly increasing home values during 2001 to 2007 when buying a home.
Worsening Debt Levels
So leveraging a house later in life may leave some older adults without a major
anchor to finance an adequate retirement, given the recent downturn in the
housing market.
"These results are troubling as far as retirement preparedness is concerned, in that American families just reaching retirement or newly retired are more likely to have debt - and significantly higher levels of debt - than past generations," Craig Copeland, EBRI senior research associate, wrote in a conclusion to the study.
A growing share of older American families incurred debt through 2007, particularly those 55 to 64 - the ages right before or at the start of retirement. The percentage of American families with a head age 55 or older who had some level of debt was 63 percent in 2007, almost 3 percentage points higher than 2004, 7 percentage points higher than the 2001, and up nearly 10 percentage points from 1992.
"... inasmuch as debt incidence and families with excessive debt payments reached their highest levels in 2007 since 1992 - (for example), before the economic downturn of 2008 - these measures of debt have almost certainly significantly worsened from these already-record levels," Copeland said. "Consequently, even more near-elderly and elderly families are likely at risk for severe changes in lifestyle after retirement."
In addition to housing debt, credit card obligations also are an area of trouble. Families with a head age 55 to 64 shouldered about $3,600 in credit card debt in 2007, up from $2,416 - a 49 percent leap.
Overall debt as a percentage of assets among older families has been on the rise in recent years, too, hitting 7.4 percent in 2007 from 6.8 percent three years earlier.
