Bankruptcy filings on rise among older Americans
These are tough economic times for people of all ages, but few are affected more than senior citizens living on pensions and Social Security, and juggling medical bills, credit card payments and mortgages along with soaring food and gas costs.
Americans age 55 or older experienced the sharpest rise in bankruptcy filings during the 16-year period between 1991 and 2007, according to a report released by AARP, "Generations of Struggle." The rate of personal bankruptcy filings among those ages 65 or older grew by 125 percent, while the bankruptcy rate of seniors ages 75 to 84 jumped a stunning 433.3 percent.
"It's frightening. It's a horror story in the making. It will not get better. It will continue to get worse," said Thomas J. Mackell Jr., chairman of the board of directors of the Federal Reserve Bank of Richmond and author of "When the Good Pensions Go Away." "We are facing a generation of boomers where 55 percent of them are ill-prepared economically to retire."
The Employee Benefit Research Institute recently released its annual Retirement Confidence Survey, which concluded that American workers' confidence in being able to afford a comfortable retirement decreased over the past year at a rate unmatched in the 18 years the institute has conducted the study.
The percentage of workers very confident about having enough money for a comfortable retirement decreased from 27 percent in 2007 to 18 percent in 2008, the survey's biggest one-year drop. Confidence was low across all age groups and income levels, but was most acute among younger workers and those with lower incomes.
Mr. Mackell said he has a sad vision of our society 10 and 15 years from now in which rising debt and dwindling company pensions will yield devastating consequences.
"The president of the United States will have to have a Sunday evening fireside chat," he said, "announcing critical emergency legislation to Congress the next day to remove all elderly people from living under bridges and back into some type of facility to have a roof over the heads."
The AARP study highlights the rising risk of financial failure with old age. The number of personal bankruptcy filings for all age groups declined after a new law took effect in 2005 making it more difficult to file for bankruptcy. But still, when the filings from 2007 were compared with those from 1991, those of older Americans as a percentage of all filings have multiplied.
"Some of the safety nets these older Americans could rely on a generation ago have eroded," said Robert Lawless, a professor at the University of Illinois who was part of the research team that gathered the data. "We hear more and more about companies not being able to meet their pension and health care obligations to retired workers," Mr. Lawless said. "And we also hear about downsizing by companies, which tends to hit older workers disproportionately."
Robert Dye, a senior economist at PNC Financial Services, said he was not surprised by the surge in senior citizens going bankrupt. Many do not have enough savings to outlast their longer life spans, and the housing downturn has added more woes, he said.
"As home values appreciate, seniors were able to extract more value out of their homes," Mr. Dye said. "But now that homes are going down in value, that source of support for spending is cut off."
Daniel White, president of Daniel A. White Associates in Glen Mills, Delaware County, said a lot of seniors also have money in the stock market and that falling stock prices have taken a toll on their standard of living.
He said he recently began working with a client who chose to take a lump sum of $500,000 rather than a company pension from his employer when he retired in 2000. Within three years, he'd lost more than half his money in the stock market.
"He's 74 years old now and gets up at 4 a.m. to deliver newspapers," said Mr. White, whose firm works only with retirees and soon-to-be retired workers. "People don't realize the impact that risk in the stock market can have when they retire. I'm sure this is not the retirement he envisioned."
For many seniors, retirement expectations are simply out of line with reality.
"One of the trends we are seeing is when people retire, instead of downsizing, they actually upsize in housing," said Patrick Astre, author of "This Is Not Your Parents' Retirement."
"You should be mortgage- and debt-free by retirement," Mr. Astre said. "You can't retire when you owe a bunch of money. I'd make a case that you should be thinking about retirement when you get your first job."
For a generation of Americans old enough to remember the Great Depression, filing for bankruptcy as a way to get out from under debt can be especially embarrassing and have a profound emotional impact in their households. Their names are published in the local newspaper, and every detail of their financial life is recorded in court documents open for public viewing.
"I've counseled hundreds of senior citizens, and almost without exception they are ashamed; but on the other hand, they are angry about the penalties, interest and underhanded tactics of collection agencies," said Steve Elias, author of "The New Bankruptcy."
"Whatever shame they feel is overcome by their need and desire to stop the harassment and abuse. A lot of times the bankruptcy is coupled with a desire to save their home or get time to regroup."
But experts say it may not be necessary for some seniors to file for bankruptcy. Most seniors do not have wages that can be garnished, and it is very difficult, if not impossible, for a creditor to garnish a pension or Social Security check.
But on the other hand, seniors who do choose to file for bankruptcy have no fear of their credit reports following them to the grave.
"The reason a lot of them file is it stops creditors from calling," said Mitch Franklin, an assistant professor of accounting at Whitman School of Management at Syracuse University. "It gives them their life back. But I don't think bankruptcy is the way to go."
First Published July 1, 2008 12:50 am