For seniors, retirement is no longer what it used to be… and it shows on their balance sheet.
Each month, 73-year-old Suzan Benge lives on just $771 in disability benefits, $100 in food stamps and $14 in government subsidies for low-income people. So when her credit card debt hit $18,000 earlier this year, she felt she had no choice but to join the rising tide of American seniors filing for bankruptcy.
The elderly are much more visible in US bankruptcy courts these days than in previous generations. baby boomers People 65 and over are racking up far higher levels of debt than their parents, who were raised during the Great Depression, and a growing minority find themselves spiraling from desperate financial hardship into bankruptcy.
The plight of seniors living in precarious circumstances was highlighted last year in data from the Consumer Bankruptcy Project, a long-term academic study that has collected information on US filers who have filed for bankruptcy since the early 1990s. a 2018 report…
1 in 7 people who file for bankruptcy in the United States are now age 65 or older, a nearly fivefold increase in just 25 years.
In 1991, people aged 65 and over accounted for only 2% of bankrupt filers, but by 2016 that figure had risen to more than 12%, says Robert Lawless, one of the report’s authors and a professor at the University of Illinois School of Law. About 800,000 households filed for bankruptcy that year, which equates to about 98,000 families or about 133,000 seniors since many are filing jointly as a couple, he adds.
Over the same period, seniors have increased as a percentage of the US adult population, but only from 17% to 19.3%. This trend is a side effect of several colliding social and economic forces in the United States that make the final years of people like Benge extremely stressful. Seniors are living longer and paying higher and higher medical bills for the privilege of staying alive; many have little or no company pension and few personal savings to fall back on.
In 1989, only 1 in 5 Americans age 75 or older was in debt; in 2016, nearly half were, according to the US Federal Reserve’s latest survey of consumer finances. The rise in senior debt comes at a time when the wealth gap between rich and middle-class or poor Americans is at an all-time high, according to a study last year by the Pew Research Center.
By 2016, the wealth of high-income Americans had more than recovered from the post-2008 recession, but the wealth of low- and middle-income families was at 1989 levels, underscoring the long-term rise in income inequality. income in the United States.
As these low- to middle-income families age, many are pushed into debt-burdened retirement by several structural trends, including the decline of unions, with their power to negotiate real wage increases, good pensions and health care schemes for retirees; the disappearance of defined benefit pension plans; high health care inflation; and a surge in the number of middle-class families helping pay for kids to go to college.
“Baby boomers’ attitude to debt hasn’t turned out to be as frugal as one might think, with parents who lived through the Depression. Part of it is because they have jobs that don’t keep up with inflation and they might need five or six jobs to make ends meet,” says Kevin Leicht, director of the sociology department at the University of Illinois. “They have to be really qualified to come out the other side with a pension they can live on for 25 years. The companies have shifted all the risk to the employees.
After The great Depression, the United States has been gradually building a financial safety net for retirees, based on Social Security payments to supplement company pensions or private retirement savings and Medicare to pay most health costs. But by the end of the last century, this “golden age” of pension security was largely over.
Elderly people who start paying social security before the age of 70 are heavily penalized. Most companies have moved to 401(k) retirement plans that fluctuate with the stock market, leaving retirees to bear all the risk; and rising health care costs have left many seniors with large bills that aren’t covered by Medicare — for many Americans, at least $100,000 per person for the duration of their retirement.
Leicht says many baby boomers face this problem of an ever-delayed retirement. “Retirement is an elusive dream” for some, he says. “That’s why 60 is the new 30 – because the lack of economic stability means that 60 can no longer be 60. To make a 401(k) based system work, you have to contribute to it regularly for 40 years and that requires a lot of self-management” – not to mention the reserve money to invest in it.
Catherine Collinson, CEO of the Transamerica Center for Retirement Studies, says we tend to think of the current generation of retirees living in “the golden age of the defined benefit plan” with guaranteed income. But it is a myth.
“Only 35% had a company-sponsored retirement plan and only 60% had a retirement account or personal savings,” Collinson says, adding that a quarter of retirees in the United States have an annual family income below $25,000.
By Suzan Benge’s standards, that’s a lot of money: her annual income is just over $10,000. But thanks to the bankruptcy, she has her recliner, her toilet paper and her supply of dish soap for the year. “A few months ago, I was making three credit card payments and it was eating up all of my income,” she says. “Now I feel rich.”
By Patti Waldmeir
OZY partners in the UK FinancialTimes to bring you premium analytics and features. © The Financial Times Limited 2020.