Retirees' Bankruptcy Rates Increasing
Build a safety net now to better prepare for your retirement years.
The Social Science Research Network (SSRN) recently released a study called "Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society,"1 which examines how and why older Americans are being affected by bankruptcy at an increasing rate.
"The social safety net for older Americans has been shrinking for the past couple decades," SSRN says. "The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher."
For the study, the SSRN utilized data from the Consumer Bankruptcy Project.2 It found an over two-fold increase since the 1990s in the rate at which Americans 65 and over file for bankruptcy, as well as a nearly five-fold increase in the percentage of folks in this group in the U.S. bankruptcy system altogether. The median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390.
According to the study, there is more to blame for this situation than simply an aging population. A variety of issues contribute to the problem. Among them are rising health care costs, an increasing age in which retirees are able to take advantage of Social Security benefits, and pensions being replaced by 401(k)s. Other things that are pushing retirees into bankruptcy, according to data from The Bankruptcy Project, are credit card interest rates and fees, medical problems, a decline in income, and aggressive debt collection practices.
When a person files bankruptcy, they must dedicate a large percentage of their disposable income in subsequent years to a debt payment plan. As a result, financial setbacks, such as car repairs, can be devastating. Such an inconvenience can become all the more troublesome if the person in bankruptcy doesn't have close friends or family to help them navigate such hurdles.
"In 2015, almost 15 percent of the U.S. population was 65 and over," the report explains. "By 2050, almost a quarter of Americans, 88 million, will be over 65 (U.S. Census 2016). If current bankruptcy trends among seniors continue, our bankruptcy courts will be flooded with financially broken retirees. For older Americans, bankruptcy is too little too late. By the time they file, their wealth has vanished, and they simply do not have the enough years to get back on their feet. Our data expose the severity of the continuing financial decline of older Americans."
With all of this in mind, it behooves Americans of all ages to do what they can now to prepare for retirement before it's too late. Get your debts paid down as soon as you can and keep them manageable. If you're paying high interest rates and excessive fees, consider consolidating your debt with a more affordable rate. You may be able to achieve this with a home equity line of credit, for example.
Placing more of a focus on savings, of course, can also help you prevent a late-in-life bankruptcy situation. Even beyond your primary savings account, consider having a separate emergency fund. Explore your retirement plan options. See Nevada State Bank's retirement account offerings here.
If retirement age is creeping up on you and you have major concerns, you may need to rethink your plans. Ultimately, you may have to work longer than you intended, but you should put your earnings to as good of use as possible so that when you finally do leave the workforce, you aren't saddled with debt that you just can't pay.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC