W19-06: Debt Stress and Mortgage Borrowing in Older Age: Implications for Economic Security in Retirement

Abstract

The amount of financial debt held by seniors in the U.S. has grown substantially over the past decade. Prior research links higher levels of debt to increased psychological stress and decreased physical health. For seniors, these effects may be exacerbated by fixed incomes and limited ability to offset higher monthly debt obligations through increased labor supply. This study will quantify stress associated with different forms of debt held by seniors—including reverse mortgages, a type of debt available only to seniors; and will explore the relationships between different types and timing of mortgage debt and older adults’ decisions regarding labor force participation and claiming of Social Security Benefits. To analyze these relationships, we use panel data from six waves of the Health and Retirement Study (HRS), supplemented with our own survey data on more than 1,000 reverse mortgage borrowers. Reverse mortgage borrowers are underrepresented in traditional survey populations and thus have been understudied despite potential growth in the market. This research links directly to the SSA’s focal area of measuring sources of income and adequacy, and in particular consumer debt as part of a household’s financial portfolio in retirement that presents an evolving risk to economic security. Debt stress among seniors can also have implications for labor force participation and the timing of draws from OASI. In addition to identifying the relationship between debt stress and retirement decisions, we examine the role of reverse mortgages for alleviating debt stress.