Each year roughly 800,000 Americans file for bankruptcy. The good news in that statistic is that the overall bankruptcy rate is actually declining, dropping about 5 percent from 2016 to 2017. In fact, if we take a long-term view over the 25 years from 1991 to 2016, the decline in the rate of bankruptcies is even more dramatic – down 64 percent for people age 25 to 34, and 40 percent for people 35 to 44. Even those in their 40s and 50s saw the bankruptcy rate decline slightly.
Defying the Trend
But according to this very recent article in the New York Times, there’s one group of Americans for whom the graph points in the opposite direction. Among those in the 55-plus age group, the rate of personal bankruptcy has skyrocketed since 1991. Americans in the 55 to 64 age group have witnessed a 66 percent spike in bankruptcies, while the next older group of seniors – those in the prime retirement years between 65 and 74 – have experienced a rate of personal bankruptcies more than twice what it was a quarter century ago. This is based on a new study just released by the Consumer Bankruptcy Project.
“The data gathered by the researchers is stark,” writes New York Times reporter Tara Bernard, who states that more than 12 percent of all those filing for bankruptcy today are over 65, whereas in 1991 that figure was barely 2 percent. “The jump is so pronounced, the study says, that the aging of the baby boom generation cannot explain it,” Bernard writes. Sadly, this unprecedented rise in retirees seeking financial relief via bankruptcy court is an indicator of the stark magnitude of the financial crisis facing many seniors.
Growing Signs of Trouble
“For a rapidly growing share of older Americans,” Bernard writes in the New York Times article, “traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy. The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years.” The article points with special emphasis to the shift over the past 30 years from company-paid pensions to employee-directed 401(k)-style retirement funds. “Driving the surge, the study suggests, is a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks.” Compounding the challenge is the steady rise in out-of-pocket medical costs coupled with declining incomes, especially since the recession of a decade ago.
The Consumer Bankruptcy Project, which is an on-going academic effort to better understand the impact and the dynamics of bankruptcy, states that many seniors facing extreme financial difficulty see no other options except for relief through the courts. “When the costs of aging are off-loaded onto a population that simply does not have access to adequate resources, something has to give,” the study says, “and older Americans turn to what little is left of the social safety net — bankruptcy court.” When asked in the study why they opted for bankruptcy, roughly 60 percent of those 65 and older cited unmanageable medical expenses. A slightly larger percentage said they were forced into bankruptcy because of a loss of income. Others put the blame on relentless debt collectors. But a major root of the problem is a clearly lack of other sources of cash. According to the Employee Benefit Research Institute, households headed by those 65 or older had a median liquid savings of just over $60,000 in 2016 – but the bottom 25 percent of that group had saved barely $3,200 on average, nowhere near enough to forestall a financial catastrophe.
‘Too Little, Too Late’
Two further financial stats stood out as we read the New York Times article. The first involved mortgage debt: the piece cited one national study showing that about twice as many seniors are carrying mortgage debt today – 41 percent – compared with 30 years ago. The second fact, also debt-related, concerned co-signing for loans for your kids and grandkids, something which we always caution our AgingOptions clients and radio listeners to avoid. “A little more than a third of the older filers who answered the researchers’ questionnaire said that helping others, like [their] children…had contributed to their seeking bankruptcy protection,” the Times article said. It quoted one West Coast bankruptcy attorney who said he had seen the phenomenon again and again, with some aging parents having co-signed loans (both student loans and consumer loans) for $10,000, $20,000, or far more for their adult children who could no longer afford to make the payments.
The New York Times analysis paints a grim picture. “Bankruptcy can offer a fresh start for people who need one, but for older Americans it ‘is too little too late,’ the study says. ‘By the time they file, their wealth has vanished and they simply do not have enough years to get back on their feet.’”
One Solution: Start with a Better Plan
The New York Times piece does a good job of stating the problem, but sadly offers little in the way of solutions. Here at AgingOptions our suggestion is first and always to get some good, solid, objective advice, not just about your finances but about the totality of your retirement plan. Having enough money saved is no guarantee of a happy and secure retirement, as we have seen over and over again in many high-profile celebrity cases in recent years. By contrast, even if you don’t have a lot of cash set aside, there are still ways in which you can protect your assets in retirement and avoid becoming a burden to those you love. The right kind of retirement plan for you is one in which finances, housing choices, legal protection, medical coverage and family communication are all securely bound together, each piece supporting the others. We call that a LifePlan, and only AgingOptions offers it.
Why not accept our invitation to come and learn more? You may very well discover peace of mind you never expected to find. Join Rajiv Nagaich at one of our free LifePlanning Seminars, offered at locations all around the Puget Sound region. There’s bound to be one that’s convenient you. For a calendar of currently-scheduled LifePlanning Seminars, visit our Live Events page where you can register online for the seminar of your choice.
Is bankruptcy really your best alternative? Perhaps – but wouldn’t it be better to discover the pathway to true retirement security with your assets protected? Find out how. We’ll look forward to seeing you soon at a LifePlanning Seminar with Rajiv Nagaich. Age on!
(originally reported at www.nytimes.com)