EBRI points out that increased debt may or may not be a problem in and of itself. If income and assets were growing faster than debt, then one could be improving his or her finances by taking on added debt. The reason EBRI is concerned is that this has not been the case recently. In fact, EBRI notes that from 2004 to 2010, the ratio of debt to income rose significantly for the three lowest income quartiles. There were some slight improvements between 2007 and 2010 in that the group above the 40% threshold became smaller, although above 1992 levels (even higher for those age 75+). Credit card debt also showed some signs of improvement.
According to EBRI, " Older families that take on higher housing debt may well have difficulty avoiding a major lifestyle change in living arrangements for the remainder of their retirement, certainly if they plan to rely on their home as a financial asset." EBRI notes that the declining home values since 2008 will make it very difficult for many to achieve the retirement security that they hoped for.
One can assume that this lifestyle change likely will impact many parts of the economy, including travel, restaurants, and others in the hospitality industry, for example.
An interesting follow-up to this report would be to study the impact that a rebound in housing prices or a further decline might have on retirement security and lifestyles. Additionally, what role will inheritances from those who were less impacted have on retirement security of those currently struggling? The EBRI note is available on its website.