Older Americans deeper in debt than previous generations, study finds

Another day older and deeper in debt is commonly considered to be the plight of the working man and woman, but the situation doesn't necessarily improve with age, a new study finds. 

Mortgages and other housing debt topped the list for families headed by someone 55 or older. Almost three-fourths of debt payments go to pay for housing debt among these families.

Another study, meanwhile, finds that Social Security payments are the primary source of income for a growing number of retirees, as private pension plans dry up and personal savings pay little or no interest. 

The nonpartisan Employee Benefit Research Institute (EBRI) study found that families headed by individuals 75 or older had increases in the incidence of debt, the average amount of debt held, and the percentage with debt payments greater than 40 percent of their income in 2010,

In contrast, families headed by those with ages just before normal retirement age (55-64) and just after (65-74) had very small changes in these debt measures and in some cases improvements.

For families with heads 75 or older, the average debt level increased from $13,665 in 2007 to $27,409 in 2010. The average debt of all of those headed by individuals 55 and older stood at $75,082 in 2010, up more than $1,300 (in 2010 dollars) from 2007.

Highest debt levels

However, the families found to have the highest levels of debt were those with heads ages 55-64, those most likely to still be working. Among those families with heads age 55-64, the average debt level was $107,060 in 2010, down from $112,075 in 2007.

"These debt results are troubling as far as future retirement preparedness is concerned, in that the data indicate that American families approaching retirement or newly retired are more likely to have debt-and higher levels of debt-than past generations," said Craig Copeland, senior research associate at EBRI and author of the article on debt of the elderly.

"Older families that have taken on higher housing debt may well eventually have difficulty avoiding a major lifestyle change in living standards in retirement, certainly if they are planning to rely on their home as an income producing asset."

For all American families with heads age 55 or older, the percentage with debt held steady from 2007 to 2010, at roughly 63 percent. Furthermore, those with debt payments greater than 40 percent of income-a traditional threshold measure of

debt load trouble-dropped to 8.5 percent in 2010 from almost 10 percent in 2007.

Despite the overall trend, the percentage of families with heads age 75 or older having debt increased from 31.2 percent in 2007 to 38.5 percent in 2010 and the percentage total debt payments represent of income increased from 4.5 percent to 7.1 percent.

Social Security is vital

Another recent EBRI study confirmed the importance of Social Security payments, finding that the government program is the primary source of income for all age groups above 65.

 In 2009, households ages 65-74 and households with members age 85 or above received 54 percent and 66 percent of their total household incomes, respectively, from Social Security benefits.

Income from pensions and annuities is the second-largest source of income for older households.

The importance of Social Security income increases with age. For households that had members ages 65-69 in 2001, the share of household income derived from Social Security rose from 47 percent in 2001 to almost 60 percent in 2009.

The study found that while about 60 percent of elderly American households spend less than their incomes, in 2009 more than 14 percent of older households spent considerably more than their income.

Singles, households with no pensions, African-Americans and Hispanics have larger shares of households with deficits. Health care and home related expenses are the biggest drivers of income deficit.

Sudipto Banerjee, EBRI research associate and author of the article on income of the elderly, noted that deficit spending is especially damaging for elderly Americans with low incomes.

"Those with an income shortfall are far more likely to be low-income, low-asset households, and they spend down their liquid assets at a faster rate than households that do not have an income shortfall," Banerjee said.