Older Americans are buried in debt — how can they get out?

Published: Oct. 23, 2020 at 2:05 p.m. ET

By Morey Stettner

It’s bad enough to have debt when you’re young. It’s worse when you’re older


It’s easy to assume retirees have built a nest egg and paid off their home. So the last thing they need to worry about is debt.

If only.

Their labor income has dried up. They primarily live off their savings and Social Security benefits. And despite the best laid plans, maintaining their standard of living in retirement can cost far more than they expected.

The total debt burden for Americans over age 70 increased 543% from 1999 through 2019, to $1.1 trillion, according to the Federal Reserve Bank of New York. For those in their 60s, debt grew 471% to $2.14 trillion.

“Debt level is a big issue and it’s rising for seniors,” said Shelly-Ann Eweka, director of financial planning strategy at TIAA. She cites three main causes: credit cards, unpaid medical bills and student loans.

The biggest source of debt-related financial stress for older Americans comes from credit cards, according to 2019 research by Donald Haurin and his colleagues at the Ohio State University.

“Credit card debt is the most stressful type of debt because if it goes into default, the collection process—or even anticipating that process—is so unpleasant,” said Haurin, an emeritus professor of economics.

For older people, mental health issues add another layer of concern. A debt-laden retirement leaves a dark cloud of anxiety hanging over daily life.

Unexpectedly high medical bills can also wreak havoc on a household budget, especially for those who haven’t qualified for Medicare. While it’s sometimes possible to negotiate with hospitals or other health care providers to lower the amount due, the outstanding balance can still prove burdensome.

“Another problem is lack of financial literacy,” Eweka said. “Those seniors with lower incomes have a lot more financial fragility than their counterparts. When you have financial fragility, you use debt to cover expenses. And some people don’t have access to proper financial advice” to help them acquire smart saving and spending habits, develop a plan to pay off debt or get credit counseling.

As higher education costs continue their longstanding tendency to exceed the inflation rate, parents have fallen victim to the nation’s student debt crisis. In recent years, 60- to 69-year-olds incurred the biggest increase—71.5%—in student loan debt.

“It’s not just paying for their kid’s tuition,” Eweka said. “Some of them get postgraduate degrees later in life and go into debt” as a result.

The pandemic isn’t helping older workers steer clear of debt. Layoffs across hard-hit industries are upending many midcareer professionals’ financial plans.

“They may have had to transition to a different career in their 50s where they earn less money,” said Kevin Crain, managing director of workplace solutions integration at Bank of America. “They may still be fully employed, but that can mean different things” and leave them facing financial strain.

Crain’s advice for older people with debt: don’t procrastinate.

“If you’re mired in debt in your 60s, deal with it now if you can,” he said. “Start to reduce it, even if you take some of your long-term resources and assets to do that. The older you get, there’s more immediacy to it because you’re on a much more restricted time [frame] to handle it.”

Don’t assume the gig economy only applies to younger workers. More seniors are generating part-time income from activities such as dog walking, tutoring and driving for hire. Even house sharing can create a steady flow of rental income.

“It’s important to come up with a strategy to reduce or eliminate debt,” Eweka said. “You may need to make seriously hard choices” like moving to a less expensive place or delaying your retirement to boost your earnings.