It may not be surprising, but it is sobering: older Americans are filing for bankruptcy at an increasingly alarming rate.
A new report, Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society, shows that the rate of bankruptcy filings among people 65 and older has tripled since 1991. Seniors also account for a far greater percentage of total filers. They now make up 12.2% of filers compared to 2.1% in 1991.
The study notes that the increase is not likely related to the growth of the senior population as the adult population of people 65 and over rose only slightly to 19.3% from 17% in 1991-2015.
Instead the authors point to several other factors causing the surge:
- Cuts and changes in federal programs. Social Security eligibility ages have risen from 65 to 67 for people born in 1960 and later.
- Stagnant wages and reduced income among older Americans. Most retirees live on fixed income from savings accumulated during their working years. They have little, if any, resources to earn extra money as they age to cover increasing costs, emergencies and debt accumulated over many years.
- Increases in health care costs. Health problems tend to increase with age, and the related medical costs can quickly become financially devastating.
- A decline in traditional 401(k) pensions. Most companies have shifted the burden of saving onto employees. Instead of a defined benefit plan where an employer makes all the contributions and promises a set lifetime payout during retirement, most people are now offered a defined contribution plan where they are responsible for all employee-sponsored retirement account contributions. With mounting bills and debt, many are falling behind and not contributing sufficiently, or at all, to their retirement savings.
- Increasing lifespans. Few Americans are financially prepared to support themselves for a three-decade retirement.
- Increasing debt. Debt has increased among this population. In 1992, 54% of households headed by those 55 or older had debt compared to 68% now, per the nonprofit, nonpartisan group Employee Benefit Research Institute. Much of the debt comes from high mortgages, college loans for children, and credit card balances.
As indicated by the study researchers:
“In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of health care, as they try to deal with reductions to their social safety net.”
Further aggravating the problem is the fact that older Americans do not have enough time to recover from financial hits. Mounting expenses result in lower or nonexistent contributions to retirement plans. Depleted nest eggs appreciate less growth to protect younger seniors for their later years.
At Silverman Financial, we are committed to helping our clients manage their finances to secure stability in the short and long term. We provide ongoing individual consultations and continually monitor changing needs and market fluctuations to protect our clients and preserve stable retirements.