Data & Research March 19, 2018

Older Families’ Debt Levels Have Increased Since 1998

Nearly 70% of families where the head of the household is 55 or older carry debt, EBRI found.

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Sixty-eight percent of families where the head of the household is 55 or older carried debt in 2016, up from 53.0% in 1998, the Employee Benefit Research Institute (EBRI) found.

In 2016, 77.1% of families with heads ages 55 to 64 held debt, compared to 70.1% of those with heads ages 65 to 74 and 49.8% of those with heads ages 75 or older.

However, EBRI found that the average total debt decreased from $82,968 in 2010 to $76,679 in 2016, and the median debt level also decreased, from $61,219 to $47,800. EBRI also learned that families with younger or more educated family heads, higher incomes and higher net worth carried significantly higher average and median debt levels.

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Debt for families with heads ages 75 or older increased from $30,288 in 2010 to $36,757, while those with heads ages 65 to 74 decreased from $78,319 to $65,686. Between 1992 and 2001, debt payments were approximately 9% of family income, but by 2010, they had increased to 11.2%. However, by 2013, that had declined to 10.0%, and by 2016, 8.2%. The older the family heads were, the lower the debt payments were as a percentage of income. For families with heads 55 to 64, that was 9.1%. for families with heads 65 to 64, 7.9%, and for families with heads 75 and older, 6.0%.

Families in the lowest income quartile were paying 16.4% of their income in debt payments in 2016, whereas families in the highest income quartile were paying only 6.2%.

The share of income that went to housing debt payments increased from 5.5% in 2001 to 8.3% in 2010, but then declined to 7.0% in 2013 and 5.7% in 2016.

Debt as a percentage of total assets for elderly (those with heads of household ages 65 and older) or near-elderly (those with heads of household ages 55 to 64) remained unchanged at 7.0% between 1992 and 1998, but declined to 6.5% in 2016.

The percentage of families headed by individuals younger than 55 with debt was 84.4% in 2016. EBRI says it appears that the percentage of families with debt peaks for those with family heads ages 35 to 54 and then tends downward for families with substantially older heads.

In conclusion, EBRI said that housing debt has been the main driver of debt for families with heads age 55 or older, while nonhousing debt has been relatively constant since 2001. In fact, the median amount of credit card debt with households headed by someone age 55 or older was $2,578 in 2013, and $2,500 in 2016.

However, American families just reaching retirement or newly retired are more likely to have debt—and higher levels of debt—than past generations. Consequently, EBRI says, more families that have elderly heads are placing themselves at risk of running short of money in retirement due to their increased likelihood of holding debt while in retirement.

EBRI’s full report, “Debt of the Elderly and Near Elderly, 1992-2016,” can be downloaded here.

The Markets March 16, 2018

Active Fund Manager Performance History Doesn’t Tell Whole Picture

The SPIVA Scorecard of active fund managers produced by S&P Dow Jones Indices shows long-term underperformance of active managers, but Steve Deschenes, with Capital Group, takes issue with the active versus passive debate.

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During 2017, the percentage of active managers outperforming their respective benchmarks noticeably increased in categories like mid-cap growth and small-cap growth funds, according to the SPIVA Scorecard of active fund managers produced by S&P Dow Jones Indices.

However, while results over the short-term were favorable, the majority of active equity funds underperformed over the longer-term investment horizon. Over the five-year period, 84.23% of large-cap managers, 85.06% of mid-cap managers and 91.17% of small-cap managers lagged their respective benchmarks. Similarly, over the 15-year investment horizon, 92.33% of large-cap managers, 94.815 of mid-cap managers and 95.73% of small-cap managers failed to outperform on a relative basis.

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Over the 12-month period ending December 31, 2017, growth managers across all three market cap ranges fared better than their core and value counterparts. S&P Dow Jones Indices suggests these results highlight the cyclicality of style box investing, as core managers outperformed 12 months prior, with the exception of small caps, while value managers outperformed core and growth 18 months prior.

Across nine style categories, large-cap value was the best-performing category over the 10- and 15-year horizons, with 29.56% and 14.29% of managers, respectively, outperforming the S&P 500 Value benchmark.

International and emerging market equity indices began a strong rally in 2016 that continued in 2017, according to the scorecard. However, during the one-year period, with the exception of actively managed international small-cap equity funds, the majority of managers investing in global, international and emerging market funds underperformed their respective benchmarks.

Steve Deschenes, product management and analytics director at Capital Group, believes the SPIVA Scorecard does a disservice to investors. He says many active funds do underperform and/or charge high costs, but investors don’t need thousands of funds to build a bigger nest egg, just a few good ones.

“Contrary to how index proponents measure success, real investors don’t start investing on January 1 and stop investing on December 31. People invest for the long-term through bull and bear markets, and performance over decades is what matters if you’re saving for retirement,” he says. “The active-passive debate is an industry discussion which distracts investors from what can have a real impact on their portfolios. This has particular resonance right now when investors might be looking to do better during market downturns. The questions investors should really be asking are: Are my funds average or exceptional? Am I getting the strongest outcomes? Am I on track with my goals?”

Results from the SPIVA Scorecard can be viewed here.

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