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4 things that are pushing retirees into bankruptcy

Money Talks News logo Money Talks News 1/18/2019 Karla Bowsher
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Not everyone’s golden years gleam. Retirees make up a growing percentage of Americans filing for bankruptcy protection, according to a recent study.

Researchers from four U.S. universities found that 1 in 7 people who files for bankruptcy is age 65 or older — which represents “nearly a five-fold increase over just 2 ½ decades.”

The U.S. bankruptcy system is designed in part to give honest debtors a fresh financial start, but retirees lack the time needed to bounce back financially.

As lead study author Deborah Thorne, an associate professor of sociology at the University of Idaho, told NPR:

"The pickle for them is that they’re older, so they cannot recover. They cannot go back to work at 65 and 70 years old and recover the money that they’ve lost.”

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4 factors behind the trend

The study authors attribute the growing number of seniors in bankruptcy to the weakened state of the nation’s social safety net. Specifically, they cite:

  • The replacing of pensions with workplace retirement plans like 401(k)s
  • The gradual increasing of the age at which retirees become eligible to receive their full Social Security benefits
  • Rising health care costs

This is in line with the four factors that older bankruptcy filers themselves cite:

  1. The stress of dealing with debt collectors: 71.6 percent of older Americans said they “very much” or “somewhat” agreed that this was a reason for their bankruptcy.
  2. Financial struggles, primarily a decline in income: 69.1 percent
  3. Medical expenses: 62.2 percent
  4. Missing work for medical reasons: 40 percent

Additionally, a majority of older bankruptcy filers said that “the single most important thing” that they or their families could not afford in the year prior to filing for bankruptcy was related to medical care — such as surgeries, prescriptions and insurance.

What it means for you

The authors conclude that, without government policy changes, the trend of increasingly more seniors resorting to bankruptcy will likely continue.

They write:

“The most effective solution to older Americans’ increasing financial plight is a social safety net that obviates the need to take out debts that result in financial crises.”

The researchers go on to say, “At the core, the lessons of prior decades show that aid to older citizens must originate with our government.”

Indeed, ways that you can respond to the news of this study include urging your federal lawmakers to do everything in their power to, say, strengthen the Social Security system or improve the nation’s health care system.

But do you really want to trust politicians with your golden years?

If what the study authors call the “graying of U.S. bankruptcy” is to let up, you must also learn from it so you can do everything in your power to avoid financial ruin in your own old age.

Younger folks can do this more easily in that they have more time to fortify their nest eggs, such as by:

On the other hand, folks who are nearing retirement with insufficient nest eggs may need to take more drastic measures and make tougher choices. This could mean working longer than you planned to bring in extra income and allow your future Social Security benefit payments to grow.

If debt stands between you and golden years, consider enlisting the aid of a reputable credit counselor.

If you have been helping adult children financially, you must say “no.” This includes:

Members of the next generation — unlike you — have decades to pay off debt and save for retirement.

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