Retired People of Color Struggle with Debt

The oldest minority retirees are struggling with debt, a new Urban Institute study finds.

The researchers’ starting point is that people generally reduce their debt as they age. To prepare for retiring, older workers try to pay down their mortgage balances and pay off credit cards. Once retired, their debt continues to shrink.

But on closer inspection, retirees in their 70s and 80s in the nation’s predominantly minority neighborhoods have shed less of their debt than their counterparts in mostly white neighborhoods, who tend to be better off financially.

In a sign of financial distress among the oldest lower-income and minority retirees, 20 percent of their loans go to collections for non-payment – double the rate for higher-income and white retirees. Minority retirees also have lower credit scores and longer spells of poor credit, according to the study, which compared U.S. households with debt in four age groups: 50s, 60s, 70s, and 80s.

The researchers concluded that disadvantaged retirees “may heavily rely on debt to support their standard of living in retirement.”

To get some perspective on this racial disparity, first compare workers in mostly white and mostly minority neighborhoods. White households in their 50s typically owed $43,000 on their credit cards, car loans, and mortgages in 2019, the most recent year of survey data.

But in minority neighborhoods, 50-somethings owe half as much – in large part because financial companies and mortgage lenders extend less credit to lower-income customers.

(These debt levels may seem small, but the analysis included renters, who don’t have a mortgage, which is the single largest debt for most Americans, and homeowners who have whittled down their mortgages or even paid them off entirely).

For retirees, the racial pattern is very different. Borrowers in their 80s in minority neighborhoods typically owed $3,250 in 2019 – more than their white counterparts. And $3,250 is a substantial burden for retirees relying mainly on Social Security. Since they’re more likely to be renters, the debt is concentrated in auto loans and high-rate credit cards, which aren’t backed by an appreciating asset like a house.

The problem for these borrowers, the researchers concluded, is that debt makes them “less financially resilient to various shocks common at those ages, such as a catastrophic health event or the death of a spouse.”

To read this study, authored by Barbara Butrica and Sipica Mudrazija, see “Financial Security at Older Ages.” 

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.