The Rising Debt Burden of Older Americans

By Lindsay Frankel
Inside Subprime: May 7, 2020

As wages have failed to keep pace with inflation and medical and educational costs have sharply increased, Americans continue to struggle financially and take on more debt. At the same time, individuals and families have taken on increasing responsibility for their financial stability during retirement, as 401(k) plans have replaced pensions and high-deductible health plans have become the norm. 

Seniors have been disproportionately harmed by these changes. An increasing share of elderly Americans are carrying debt into retirement, which puts them at risk of running out of funds. In fact, the share of bankruptcy claims made by seniors has dramatically risen to 12 percent from just two percent in 1991. 

Because many seniors live on a fixed income, debt repayment can cause them to forego things like medical care and struggle to pay necessary bills. These difficulties, along with the stress of financial woes, have a negative impact on the health of older Americans. 

How Much Do Seniors Owe?

Data from the Federal Reserve Bank of New York show that the total outstanding debt balance for seniors over 70, which hit more than $1 trillion in 2019, has increased 543 percent in the past two decades. Adults in their 60s had even more debt ($2.14 trillion), a 471 percent increase from 1999. While collective debt rose for all age groups over that time period, there was a disproportionate increase in the debt burden for seniors. 

The share of households headed by someone 65 or older that held debt increased from about 38 percent in 1989 to 61 percent in 2016. During that time, median debt increased from $7,463 to $31,050 (in 2016 dollars), while real average debt skyrocketed from $29,918 to $86,797. 

Carrying some debt into retirement isn’t necessarily dangerous, experts say, as long as seniors have enough income or savings that they can easily manage repayment while keeping up with everyday expenses. But more older Americans are struggling with a debt-to-income ratio of greater than 40 percent, a common threshold for assessing financial hardship. While the share of families with debt payments greater than 40 percent of their income dropped between 2007 and 2016, the percentage of households headed by someone 75 or older struggling with a high DTI ratio increased more than 23 percent, according to the Employee Benefit Research Institute

Sources of Debt Among Older Americans

Outstanding balances for all types of debt among seniors have steadily increased over the last few decades. This table shows the share of elderly households (headed by someone age 65 or older) with debt, along with the median debt amount by type in 2016.

Primary residenceOther residentialAuto loanStudent loanCredit cardAll debt
Share of elderly households with debt33.4%4.4%21.2%2.4%35.1%61.1%
Median debt among elderly households$72,000$98,000$11,000$12,000$2,400$31,050

While the share of elderly households with student loan debt is small, this figure has seen the largest increase over the past several decades. Just 0.5 percent of elderly households held student debt in 1989. The Consumer Financial Protection Bureau also found that the number of student loan borrowers age 60 and older has quadrupled since 2005. The student loan debt burden for seniors is growing faster than for any other age group. 

There are a couple of reasons for this. More older Americans are returning to school to continue their education or change careers. And, as a result of increasing education costs, more parents are taking out loans to finance their children’s education. The average amount borrowed through Parent PLUS loans tripled between 1990 and 2014. 

In a survey of aging network professionals conducted by the National Council on Aging, over half of respondents said that medical debt posed the biggest threat to the financial security of seniors. And a Commonwealth Fund survey found that 7 million elderly adults are struggling under the weight of medical debt. 

All of this debt has led to rising bankruptcy rates among older Americans. The share of elder bankruptcy claims has risen from 2 percent to 12 percent in the last few decades. And since student loan debt is typically not dischargeable in bankruptcy, the measure doesn’t always provide complete relief for filers. 

Unique Financial Challenges for the Elderly

As lifespans increase and medical costs continue to rise, many seniors are at risk for running out of money during retirement. 43 percent of single Social Security recipients and 21 percent of married recipients depend on the payments for 90 percent of their income or more. And while more older adults are working past retirement age, those who become unemployed have a much more difficult time securing additional income than younger workers. Living on a fixed income means many seniors struggle to make ends meet; one-third of elder households run out of cash or are in debt after covering necessary expenses. 

Aging network professionals expressed that seniors are foregoing necessary medical treatment and home or auto repairs in order to manage their debt. 13.7 percent of professionals even reported that they had seen seniors skip meals due to financial insecurity. 

Furthermore, seniors are often the victims of financial scams and predatory lending. One in 20 seniors expressed enduring financial abuse recently, and the majority of these crimes go unreported. That means that even seniors who have built retirement savings are at risk of losing their earnings and falling into debt. And an increasing share of older adults are turning to payday loans and other risky methods of borrowing, which only exacerbate financial hardship. 

These financial vulnerabilities have an adverse effect on the health of senior citizens. Debt leads to increased stress levels, which negatively impacts the physical and mental health of older adults. To make matters worse, many seniors forego medical care in order to allocate their income towards debt repayment, which increases the likelihood of poor health outcomes. 

Resources for Seniors

For more information on the middle income consumer, subprime loans and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.