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

The amount of financial debt held by older adults in the U.S. has grown substantially over the past two decades. It is important to understand how debt levels contribute to overall well-being and their implications for retirement decisions. In this study, we focus on the relationship between mortgage debt, financial stress, and early claiming of Social Security retirement benefits using data from the Health and Retirement Study and our own national survey of reverse mortgage borrowers. We first provide a detailed assessment of mortgage debt, finding that higher levels of both first and second mortgages are associated with higher financial stress. However, the amount of stress from mortgage debt is less than that from unsecured forms of borrowing. We next identify the financial stress associated with reverse mortgages, a type of mortgage debt available only to older adults. Per dollar of debt, reverse mortgages result in lower financial stress compared to traditional mortgages or credit cards. However, the total stress of a reverse mortgage may exceed that of a standard mortgage over time, as its balance grows while standard mortgage balances decrease. We conclude our analysis by exploring the relationship between financial stress and the decision to claim Social Security Retirement Income early at age 62. We find that an increase in financial stress is associated with a lower likelihood of claiming Social Security early. These findings offer important insights about the relationship between mortgage debt and financial stress, and its consequences in older age.