Will Baby Boomers Drown in Debt?

The fact that American households have debt is not a surprise: credit cards finance our purchases, car loans pay for our wheels, student loans help us with tuitions, and mortgages buy our homes. Yet the size of the debt can seem shocking. The aggregate burden runs to nearly $10 trillion, nearly twice what it was in 1992, even after adjusting for inflation. Today, household debt is equivalent to more than 80 percent of the nation’s economy, up from about 60 percent in the early 1990s (see Figure 1). Filings for bankruptcy have also soared. In 1991, 6 out of every 1,000 adults filed for bankruptcy. This rate climbed to 9 in 2001. Given the potential of debt to undermine the retirement security of an aging population, this Just the Facts examines trends in the debt burden for older workers over the past decade and assesses how vulnerable baby boomers may be in the future. Households aged 50 to 62 represent about 20 percent of American households and hold about a quarter of the total debt. About 11 percent of them have declared bankruptcy at some point in their lives. As a result, some analysts have questioned whether baby boomers will have a comfortable retirement, and whether they will be able to pay back their obligations. Are future retirees going to be in trouble? Important measures of financial vulnerability suggest that the growth of debt might not be that worrisome. The combination of extraordinary asset growth and historically low interest rates allowed households to increase their debt relatively painlessly: their net worth grew significantly, and the portion of income used to pay for debt did not increase. This is not to say that baby boomers might not encounter a few bumps in the road or that some groups might not be vulnerable. But baby boomers as a group do not appear to have an immediate debt crisis.