Household debt has been rising for Americans of most age groups but is particularly pronounced among Gen X.
Though younger workers entering the workforce have lower salaries and newly acquired student loan debt, older workers often struggle to balance paying off their mortgages, insurance, auto loans, and credit card debt.
As inflation rises and wages stagnate, more consumers, including seniors and retirees, are taking on debt to get by.
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Retirees generally live off a modest fixed income from employer-sponsored pension plans, 401(k), or IRAs. Most rely on Social Security payments to supplement their income, especially as food, housing, and medical care costs increase.
Carrying any debt — mortgage, credit card, medical — into retirement can become unmanageable as paying off outstanding debt on a reduced income is difficult.
Inflation, interest rates, and the rising cost of living are forcing many retirees to lean on credit cards.
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Inflation is fueling rising consumer debt
A universal piece of financial guidance for all age groups is to pay down high-interest debt as quickly as possible. The longer you carry debt, the more interest is accrued and the more expensive the debt balance becomes.
In 2022, the average retirement income was $50,290 for individuals and $76,490 for couples.
For seniors who have left the workforce and live off a reduced income, paying off debt becomes far more difficult during retirement — especially as medical and caregiving costs increase.
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A recent study found that a staggering 97% of retirees aged between 66 and 71 carry some degree of non-mortgage debt. Most of the debt stems from auto loans (33%) and credit card debt (32%), but 15% of retirees are still paying off their student loans, indicating that paying off debt is a burdensome, decades-long battle.
The average debt balance hovers around $11,000, a substantial amount for high-interest lending products.
Analysts attribute the recent rise in debt levels among older Americans to a combination of inflation, years of high interest rates, and insufficient retirement savings. Retirees now face an unsustainable cost of living, and the likelihood of paying off debt decreases as they age.
Credit card debt is on the rise for retirees
Persistent inflation has increased the cost of groceries, housing, and medical care, the most significant expenses for seniors. Many turn to credit cards to bridge the gap and make ends meet.
However, credit card debt is one of the riskiest forms of debt to take on at any age since interest rates average over 20% and debt balances can snowball quickly. Since 1992, household debt has quadrupled for retirees aged between 65 and 74 and increased sevenfold for those 75 and over.
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Skyrocketing debt levels threaten the financial stability of seniors and their families, as any unpaid debt is often passed onto relatives.
Experts at the Center for Retirement Research note that when seniors hold too much debt—especially high-interest credit card debt—they can become overleveraged and unable to meet their housing costs.
Access to credit cards didn’t become widespread until the 1960s, and home equity loans weren’t instituted until the 1980s and 1990s. This means that today’s retirees have far more access to lending services than previous generations to help them get by.
However, consistently high interest rates mean borrowers must be wary of how debt can quickly become a slippery slope.
Financial advisor Ryan Derousseau warns that your financial habits will stay with you, even through retirement. “People kind of get used to borrowing,” he said to AARP. “If you haven’t kicked that habit, you’re going to continue to borrow at 70 and 80.”
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