Older persons today appear more likely to enter retirement in debt than in past decades, according to a working paper from the National Bureau of Economic Research.

The NBER paper – Debt and Financial Vulnerability on the Verge of Retirement – is co-written by Annamaria Lusardi, Olivia S. Mitchell and Noemi Oggero.

While the massive debt run-up by American households has been noted in a number of previous studies, far less work has been done evaluating older Americans’ debt pattern or the determinants of indebtedness close to retirement.

Milken ranked 381 metropolitan areas for elderly adults using metrics not for a relaxing retirement but for an active one.

The paper, which analyzed older individuals’ debt and financial vulnerability using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS), finds that recent cohorts have taken on more debt and face more financial insecurity, mostly due to having purchased more expensive homes with smaller down payments.

The paper examines three different cohorts (individuals age 56–61) in 1992, 2004, and 2010 to evaluate cross-cohort changes in debt over time.

The paper defines these three cohorts as the “HRS baseline” cohort, which was born 1931–1941; the “War Babies” group, which was born 1942–1947; and the “Early Boomer” group, which was born 1948–1953.  

The percentage of people age 56–61 arriving at the verge of retirement with debt rose from 64% in the HRS baseline group to 71% among Early Boomers, according to the paper’s findings.

Additionally, the value of debt held rose sharply over time.

While the median amount of debt in the baseline group was about $6,800, it more than quadrupled among War Babies and almost quintupled among Early Boomers (respectively $31,200 and $32,700, all in 2015 dollars).

The paper also finds that the debt distribution appears to have changed across cohorts.

In the baseline group, the top quartile of the debt distribution held around $51,000 in debt, while in the two cohorts surveyed more recently, this same quartile of the population held more than double ($106,000) and almost triple ($146,800) that amount.

“Depending on the interest rate charged on this debt, these families would be very likely to face sizeable monthly debt repayments and to carry debt well into retirement,” the paper states. “As debt levels increase, borrowers’ ability to repay becomes progressively more sensitive to drops in income as well as increases in interest rates.”

One factor driving this rise in debt across time is the greater value of people’s primary residence mortgages for the cohorts surveyed more recently, according to the paper.

According to the research, the percentage of people age 56–61 having mortgage debt has risen by eight percentage points, from 41% in the baseline group to 49% among Early Boomers. Moreover, mortgage debt amounts grew as well.

“Regardless of whether older persons are over-indebted, the larger stock of household debt has important macroeconomic implications,” the paper states. “In fact, people on the verge of retirement will be more sensitive to fluctuations in interest rates—particularly if they are unexpected—and the current low interest rate environment is likely to change.”

The paper also finds that factors associated with greater financial vulnerability include having had more children, being in poor health, and experiencing unexpected large income declines. While factors reducing exposure to debt include having higher income, more education, and greater financial literacy.