Seniors & Bankruptcy:

6 Reasons for the Increase

One of my stepmother’s favorite authors was Erma Bombeck, a gifted writer, and humorist. I’ve never read her work, but I recall smiling at the titles of her books. One title, If Life Is a Bowl of Cherries What Am I Doing in the Pits? seems particularly apropos for what many seniors are experiencing today. Two weeks ago, I saw an article in the paper by Tara Siegel Bernard, a reporter for the New York Times, who specializes in “personal finance and consumer issues.” Always on the lookout for articles about seniors, her article, Bankruptcy Booms for Older Americans, grabbed my attention.

She cites data from a study conducted by the Consumer Bankruptcy Project that paints a less than rosy picture for many older Americans.  The most alarming statistic is that bankruptcies for seniors aged 65 and above have since 1991 tripled. This problem is not an overnight phenomenon. It is a complex issue that has been developing for several decades, with no single reason for the dramatic increase. Instead, it is the combination of several factors. Today I will be sharing those with you.

Replacing Pension Plans– Alicia Munnell, the director of the Center for Retirement Research at Boston College, cites in a 2015 paper an earlier study where in the early to mid-1980’s, corporations began replacing defined pension plans with riskier employee-owned 401(k)s, whose value fluctuates with the stock market. “With the 401(k)-style of savings, payout during retirement is not defined or predictable, employees bear all of the market risks, and returns depend on employees’ investment skills.” In essence, economic wealth was transferred back to the corporation.

Increased Health Care Costs– The cost of health care has been increasing at an alarming rate for years and many seniors know first-hand how difficult paying those bills can be. It was once believed that seniors qualifying for Medicare would be covered. The reality is that “out-of-pocket spending among older Americans with Medicare comprises about 20 percent of their income, and the estimated total of all noncovered medical expenses for a 65-year-old retired couple during their retirement years is $200,000.” The same study showed that “in 2013, among working households, age 55-64, with a 401(k), the median amount in those accounts was $111,000.

Underemployment – For many seniors, their retirement income is simply not enough to live on. Increases in not just health care, but daily living have made it almost impossible for many seniors to get by. As I pointed out above, the $89,000 shortfall in meeting medical expenses, says nothing about other living expenses that have to be paid. A 2008 study by Tim Slack and Leif Jensen point out the difficulties seniors face with finding employment that will adequately help pay the bills. For the few who do have jobs, full or part-time, the earnings are often woefully inadequate to make ends meet.

The Recession of 2008 – Mark Mather, a demographics expert with the Population Reference Bureau, shows in a 2015 study the negative effects the 2008 recession had on seniors’ retirement income. Mather’s study claims older adults were relatively unaffected because many owned their homes outright and/or did not have to worry about job loss because they had no jobs to lose. Mather’s research may show this to be true. However, there can be no denying the losses many seniors endured especially since their 401(k)s were tied to the stock market.

Inadequate Savings– Alana Semuels, a staff writer for The Atlantic, reported recently the stark realities many seniors face. Combined with the above reasons, many seniors never thought they’d live into their nineties, and not expecting long lives certainly weren’t prepared for the rising costs of healthcare or daily living.

Increased Debt – Older adults over age 75 for several years have been willing, says Russ Wiles, a writer for The Republic, to take on debt. The reasons are varied but include low-interest rates on credit cards and want to help adult children. The average debt held by seniors is relatively small, only $20,900, but paying it back can be problematic.

Money issues are not a problem unique only to seniors. Everyone in the workforce when the recession of 2008 hit was to some extent adversely affected. Seniors though do not have the one resource most others have. That resource is time. It is much easier for someone younger to start over. Not so with a senior, especially if on a fixed income and facing health challenges.

The six factors I’ve listed are interrelated. I’m not sure any single factor could lead someone to bankruptcy, but a combination of these certainly could.  It’s easy to see why many seniors faced with these challenges would choose bankruptcy. There’s no disincentive. Why remain in the pits if you can get a fresh start, even if time is not your ally?

Bankruptcy is certainly an appealing option, and not just for seniors. But is it the only option? Several years ago, things were not going well for me and I considered bankruptcy. It was a viable option, but I decided, in the end, to make some changes and move forward. However, I did have time on my side and was able to adjust and adapt to the new plan. Next week I will look at several proactive options seniors may want to consider before filing for bankruptcy. I hope you will read the article, taking one or two to heart or developing a different strategy.