EBRI Issue Brief

Who Is Most Vulnerable to the Ticking Debt Time Bomb in Retirement: Families With the Oldest, Black/African American, and Hispanic Family Heads

Dec 17, 2020 25  pages


Much of the attention to retirement preparedness focuses on asset accumulation in individual account retirement plans as well as the presence of defined benefit plans, but the other side of the balance sheet — debt — can potentially have a significant impact on the financial success of an individual’s retirement. Any debt that a family may have accrued entering or during retirement can offset any asset accumulations, resulting in less retirement income security.

This Issue Brief focuses on the trends in debt levels among American families with a special emphasis on families with family heads ages 55 or older and those of different racial/ethnic groups, as financial liabilities are a vital but often ignored component of retirement income security. The Federal Reserve’s Survey of Consumer Finances (SCF) is used in this article to determine the debt levels. The most recent data are for 2019, so they establish a pre-pandemic baseline.

In addition to the incidence and levels of debt, debt is examined in two ways:

  • Debt payments relative to income.
  • Debt relative to assets.

Each measure provides insight regarding the financial abilities of American families to cover their debt before or during retirement. For example, higher debt-to-income ratios may be acceptable for families with younger heads who would have long working careers ahead of them, because their incomes are likely to rise, and their debt (related to housing or children) is likely to fall in the future. On the other hand, higher debt-to-income ratios may represent more serious concerns for families with older heads, who could be forced to reduce their accumulated assets to service the debt at points where their peak earning years are ending or behind them. However, if these older families with high debt-to-income ratios have low debt-to-asset ratios, the effect of paying off the debt may not be as financially difficult as it might be for those with high debt-to-income and high debt-to-asset ratios.

This study by the Employee Benefit Research Institute (EBRI) found the following trends in the debt holdings of families:

  • The share of American families with heads ages 55 or older with debt increased continuously from 1998 through 2019. The 2019 level of 68.4 percent was nearly 15 percentage points higher than the 1992 level of 53.8 percent and 5.4 percentage points higher than in 2007. This increase in the incidence of debt has been driven in recent years by the families with heads ages 75 or older. For this age cohort, the share having debt increased from 41.3 percent in 2013 to the 51.4 percent in 2019. In contrast, the incidence among families with heads ages 55–64 and 65–74 experienced a small increase or decline during that period.
  • Debt levels, in contrast, have decreased from their peaks in 2010, although families still had debt levels that exceed their 2001 levels. The average debt amount for families with heads ages 55 or older was $88,245 in 2010; this amount stood at $82,481 in 2019 (both amounts in 2019 dollars). Furthermore, debt payments as a percentage of income fell from 11.4 percent in 2010 to 9.2 percent in 2019, and debt payments as a percentage of assets declined from 8.4 percent to 6.8 percent.
  • Housing debt continued to drive the level of debt payments in 2019. However, the incidence of credit card debt increased for families with heads ages both 55–64 and 75 or older in 2019, and each age group of family heads experienced an upturn in the median credit card debt held in 2019. In fact, families with heads ages 75 or older had significant growth in both median housing and median credit card debt in 2019.
  • Still, younger families — those with heads younger than age 55 — have had a higher probability of having debt and higher debt payments as a percentage of income than families with older heads.
  • Families with Black/African American or Hispanic heads had much higher debt-to-asset ratios than families with white, non-Hispanic heads. Further, the debt of the families with minority heads is more likely the result of consumer debt, not housing debt. This is troubling because while families can build wealth through homeownership, they cannot through consumer debt.
  • Furthermore, families with minority heads, particularly those with Hispanic heads, were more likely to have debt payments more than 40 percent of their income.

In short, while improving in many respects in the most recent years, the overall trends in debt are troubling in terms of retirement preparedness.

American families with heads just reaching retirement or those newly retired are more likely to have debt — and higher levels of debt — than past generations. Furthermore, the percentage of families with heads ages 75 or older having debt, including credit card debt, is at its highest level since 1992. Thus, more and more families are carrying debt into and throughout retirement.

All of this points to the importance of workplace financial wellness programs that support money management skills not only as a way to benefit individuals during their working years but also into their retirement. With reduced financial liabilities and a sounder balance sheet, workers not only can better focus on work but feel more secure in retiring. This is even more pertinent for families with minority heads, as they have more debt relative to their assets than families with white, non-Hispanic heads.