Tuesday, January 14, 2014

Household Debt & Retirement?

The Center for Retirement Research at Boston College has released a December, 2013 report, Does Household Debt Influence the Labor Supply & Benefit Claiming Decisions of Older Americans? The abstract describes the study:

Americans’ indebtedness has increased dramatically since the 1980s – a trend likely to have important implications for retirement security. This study finds that older adults with debt are 8 percentage points more likely to work and 2 percentage points less likely to receive Social Security benefits than those without debt. Not only does the presence of debt influence older adults’ behavior, but so do the amount and type of debt – particularly outstanding mortgages. Increasingly, retirement security will depend on having enough income and assets to pay for basic living expenses and to service debt.

The discussion section of the report notes how we in the U.S. have become more comfortable with the concept of debt and how that comfort level has "spread" to "older adults, who are supposed to be at the peak of their wealth accumulation and debt-free going into retirement." The study authors offer that there may be a correlation between debt, retirement timing and application for Social Security retirement.  On page 22, the authors note:

Delaying retirement and benefit claiming as long as possible increases financial security in retirement for everyone, but it is especially important for those with debt. So it is encouraging to find that older adults with debt are delaying both retirement and Social Security benefits. At some point, however, age and health prevent most people from working... More than ever, retirement security will depend on retirees having enough income and assets to pay for basic living expenses and to service their debt. Ideally, older adults would pay off their debts well before retirement age. So it is going to be important to identify those who are financially fragile, to better understand their circumstances, and to look for ways to help repay their debt before retirement....



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