Indebtedness is a more serious problem for approaching retirement today than those in the past, according to information provided at a recent Senate Select Committee on Aging hearing.
The issue is of concern because those living on fixed income have fewer options for paying down debt than those still employed, and could force people to put off retirement until they are in better financial shape.
The testimony focused on total debt, including mortgages and other residential loans plus other debt such as credit cards, for people in the 56-61 age range in 1992, 2002 and 2008. Among the first group, about 64 percent had any debt, compared with 70 percent among the latter group. In addition, those with debt in the latter group now have more—a median of $28,300 vs. $6,200 for the first group.
"Since debt payments typically rise faster than the interest rates that retirees can earn on their investments, they will likely be more vulnerable during retirement," said Olivia S. Mitchell, a Professor at the Wharton School and director of the Pension Research Council at the University of Pennsylvania.
Those now moving into retirement "are more leveraged due to housing than their earlier counterparts back in the 1990s, since they bought more expensive houses and financed them with larger mortgages . . . [and] re also much more likely to have debt equal to or greater than their liquid assets, meaning that they will likely have to sell off their less liquid assets (or borrow more) to meet their bills," she said.
Almost a quarter of the 2008 pre-retirees had debts exceeding their assets, compared with 10 percent among the 1992 group.