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This growing problem threatens to delay your retirement

CNBC logo CNBC 6/4/2018 Annie Nova
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Americans today are more likely to reach retirement in debt than ever before.

That's the takeaway from a new study that appeared last month in the American Economic Association Papers and Proceedings.

The researchers compared debt levels among different generations when they were between the ages of 56 and 61 to learn how the financial standing of people bracing to exit the workforce has changed over time and how much the Great Recession was a factor. 

The average American retires in his or her early 60s.

Researchers found that more than 70 percent of people who fell in that age range in 2010 were in debt, up from 64 percent in 1992.

"More and more, the current generation will have to deal with debt close, and into, retirement," said Annamaria Lusardi, the Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business, and a co-author of the study.

In addition, she said, "the value they carry close to retirement has increased a lot."

People who were between the ages of 56 and 61 in 2010 carried a median debt balance of $32,700, up from $6,760 in 1992. (All values are expressed in 2015 dollars).

"This debt can contribute to some financial fragility," Lusardi said.

For one, she said people might be forced to work longer. Older families carrying debt will also be more exposed to changes in interest rates, which are expected to rise.

Having to divert a greater share of one's resources toward mortgages and credit card bills can also be especially difficult (potentially impossible) for those on a fixed-income.

And more than 40 percent of single adults receive almost all of their money from their monthly Social Security check, according to the government.

Such debt can even increase one's chance of filing for bankruptcy, Lusardi said, pointing to another study that showed bankruptcy filings growing fastest among Americans over the age of 65.

So why are older Americans deeper in arrears than they've ever been?

In part, that's due to the increase in housing costs during the 2000s.

On top of high prices, people also were able to secure homes with smaller down payments, and mortgages were increasingly available to people with lower credit scores and few resources.

And there are still scars to show for it.

The mean value of mortgage debt for people between the ages of 56 and 61 in 2010 was $73,923, compared with just $27,493 in 1992, according to Lusardi's study.

"People over time have bought larger homes with higher mortgages," Lusardi said.

Borrowing has grown easier elsewhere too, she added.

Credit cards along with a slew of alternative financial services, like payday loans and auto title loans, are available to more people than they were decades ago, she said.

"You're giving credit to people who don't know a lot about, for example, the power of interest compounding," Lusardi said.

The lenders, for their part, might not always make the the terms explicit.

"Retirement today will have to do not just with accumulating wealth, but managing debt," Lusardi said. 

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