The shadow of debt is creeping further into retirement, EBRI says

A new study by the Employee Benefit Research Institute reveals a concerning trend of debt among American families, particularly those headed by older individuals, underscoring yet another potential risk to workers’ retirement income security.

Based on an analysis of the Federal Reserve’s Survey of Consumer Finances, EBRI highlighted that the proportion of families with heads aged 55 or older carrying debt increased steadily from 1998 to 2019, before seeing a decline in 2022, the most recent year for which data is available.

But even with that recent drop, the analysis found 66.8 percent of families among households headed by people at least 55 years old had debt in 2022, a dramatic rise over the 53.8 percent in 1992 and 3.8 percentage points higher than in 2007.

"Housing debt continued to drive the level of debt payments in 2022," EBRI said, noting that nonhousing or consumer debt payments remained relatively stable.

Notably, the incidence of credit card debt rose for families with heads aged 75 or older, although the median amount of credit card debt for that advanced age group decreased significantly in 2022.

Among families with heads younger than 55, EBRI found a higher likelihood of having debt and larger debt payments as a percentage of income compared to older families. Despite this, from 2010 to 2022, trends remained consistent across both age groups across most debt measures.

Younger families experienced an increase in average debt, EBRI said, though that was offset by a decrease in their total debt payments as a percentage of income. The pattern was reversed for older families, with households headed by 55-year-olds and up seeing a decrease in average debt and an increase in debt payments as a percentage of income.

"While improving in many respects in the most recent years, the overall trends in debt are troubling in terms of retirement preparedness," EBRI said. "American families just reaching retirement or those newly retired are more likely to have debt — and higher levels of debt — than past generations."

The fact that debt stays with families through their working years and into retirement suggests a need for better financial management, EBRI said. To help address the problem, it suggested employers could play a crucial role with financial wellbeing programs to help families manage debt, potentially reducing the risk of financial insecurity in retirement.

"This could reduce families’ risk of running short of money in retirement due to a potentially lowered likelihood of holding debt while in retirement," the report said.