Aug. 5, 2018
For a rapidly growing share of older Americans, traditional
ideas about life in retirement are being upended by a dismal reality:
bankruptcy.
The signs of potential trouble — vanishing pensions, soaring
medical expenses, inadequate savings — have been building for years. Now, new
research sheds light on the scope of the problem: The rate of people 65 and
older filing for bankruptcy is three times what it was in 1991, the study
found, and the same group accounts for a far greater share of all filers.
Driving the surge, the study suggests, is a three-decade shift
of financial risk from government and employers to individuals, who are bearing
an ever-greater responsibility for their own financial well-being as the social
safety net shrinks.
The transfer has come in the form of, among other things, longer
waits for full Social Security benefits, the replacement of employer-provided
pensions with 401(k) savings plans and more
out-of-pocket spending on health care. Declining incomes,
whether in retirement or leading up to it, compound the challenge.
Cheryl Mcleod of Las Vegas filed for bankruptcy in January after
struggling to keep up with her mortgage payments and other expenses. “I am 70,
and I am working for less money than I ever did in my life,” she said. “This
life stuff happens.”
As the
study, from the Consumer Bankruptcy Project, explains, older people
whose finances are precarious have few places to turn. “When the costs of aging
are off-loaded onto a population that simply does not have access to adequate
resources, something has to give,” the study says, “and older Americans turn to
what little is left of the social safety net — bankruptcy court.”
“You can manage O.K. until there is a little stumble,” said
Deborah Thorne, an associate professor of sociology at the University of Idaho
and an author of the study. “It doesn’t even take a big thing.”
The forces at work affect many Americans, but older people are
often less able to weather them, according to Professor Thorne and her
colleagues in the study. Finding, and keeping, one job is hard enough for an
older person. Taking on another to pay unexpected bills is almost unfathomable.
Bankruptcy can offer a fresh start for people who need one, but
for older Americans it “is too little too late,” the study says. “By the time
they file, their wealth has vanished and they simply do not have enough years
to get back on their feet.”
The data gathered by the researchers is stark. From February
2013 to November 2016, there were 3.6 bankruptcy filers per 1,000 people 65 to
74; in 1991, there were 1.2.
Not only are more older people seeking relief through
bankruptcy, but they also represent a widening slice of all filers: 12.2
percent of filers are now 65 or older, up from 2.1 percent in 1991.
The jump is so pronounced, the study says, that the aging of the
baby boom generation cannot explain it.
Although the actual number of older people filing for bankruptcy
was relatively small — about 100,000 a year during the period in question — the
researchers said it signaled that there were many more people in financial
distress.
“The people who show up in bankruptcy are always the tip of the
iceberg,” said Robert
M. Lawless, a law professor at the University of Illinois and
another author of the study.
The next generation nearing retirement age is also filing for
bankruptcy in greater numbers, and the average age of filers is rising, the
study found.
Given the rate of increase, Professor Thorne said, “the only
explanation that makes any sense are structural shifts.”
Ms. Mcleod said she had managed to get by for a while after
separating from her husband several years ago. Eventually, though, she
struggled to make ends meet on her income alone, and she fell behind on her
mortgage payments.
She collects a small Social Security check and works at an adult
day care center for people with intellectual disabilities and mental health
problems. For $8.75 an hour, she makes sure clients participate in daily
activities, calms them when they are irritated and tries to understand what
they need when they have trouble expressing themselves.
“When I moved here from Los Angeles, I was wondering why all of
these older people were working in convenience stores and fast-food
restaurants,” she said. “It’s because they don’t make enough in retirement to
support themselves.”
Ms. Mcleod said she hoped that filing for bankruptcy would help
her catch up on her mortgage so she could stay in her home. “I am too old to
move out of here,” she said. “I am trying to stay stable.”
For about one in three older people who receive Social Security
benefits, their monthly check accounts for 90 percent of their income,
according to the Social Security Administration. Spending by those over 65 by
income is based on Medicare beneficiaries, most of whom are 65 and over; the
remainder are younger and disabled. | Source: Kaiser Family Foundation
The bankruptcy project is a long-running effort now led by Professor
Thorne; Professor Lawless; Pamela
Foohey, a law professor at Indiana University; and Katherine Porter, a
law professor at the University of California, Irvine. The project — which is
financed by their universities — collects and analyzes court records on a
continuing basis and follows up with written questionnaires.
Their latest study —which was posted online on Sunday and has
been submitted to an academic journal for peer review — is based on a sample of
personal bankruptcy cases and questionnaires completed by 895 filers ages 19 to
92.
The questionnaire asked filers what led them to seek bankruptcy
protection. Much like the broader population, people 65 and older usually cited
multiple factors. About three in five said unmanageable medical expenses played
a role. A little more than two-thirds cited a drop in income. Nearly
three-quarters put some blame on hounding by debt collectors.
The study does not delve into those underlying factors, but
separate data provides some insight. The median household led by someone 65 or
older had liquid savings of $60,600 in 2016, according to the Employee Benefit
Research Institute, whereas the bottom 25 percent of households had saved at
most $3,260.
That doesn’t provide much of a financial cushion for a
catastrophic health problem. Older Americans typically turn to Medicare to pay
their medical bills. But gaps in coverage, high premiums and requirements that
patients shoulder some costs force many lower-income beneficiaries to spend
more of their own income on those bills, the Kaiser Family Foundation found.
By 2013, the average Medicare beneficiary’s out-of-pocket
spending on health care consumed 41 percent of the average Social Security
check, according to Kaiser, which also estimated that the figure would rise.
More people are also entering their later years carrying debt.
For many of them, at least some of the debt is a mortgage — roughly 41 percent
in 2016, compared with 21 percent in 1989, according to an Urban Institute
analysis.
And those who are carrying debt into retirement are carrying
more than members of earlier generations, an analysis by the Employee Benefit
Research Institute found.
Perhaps not surprisingly, the lowest-income households led by
individuals 55 or older carry the highest debt loads relative to their income.
More than 13 percent of such households face debt payments that equal more than
40 percent of their income, nearly double the percentage of such families in
1991, the employee benefit institute found.
Older Americans’ finances are also being strained by the needs
of those around them.
A little more than a third of the older filers who answered the
researchers’ questionnaire said that helping others, like children or older
parents, had contributed to their seeking bankruptcy protection. Marc Stern, a bankruptcy lawyer in Seattle, said he had
seen the phenomenon again and again.
Some parents, Mr. Stern said, had co-signed loans for $10,000 or
$20,000 for adult children and suddenly could no longer afford them. “When you
are living on $2,000 a month and that includes Social Security — and you have
rent and savings are minuscule — it is extremely difficult to recover from
something like that,” he said.
Others had co-signed their children’s student loans. “I never
saw parents with student loans 20 or 30 years ago,” Mr. Stern said.
“It is not uncommon to see student loans of $100,000,” he added.
“Then, you see parents who have guaranteed some of these loans. They are no
longer working, and they have these student loans that are difficult if not
impossible to pay or discharge in bankruptcy, and these are the kids’ loans.”
Keith Morris, chief executive of Elder Law of Michigan, which
runs a legal hotline for older adults, said the prospect of bankruptcy was a
regular topic for his callers.
“They worked all of their lives, and did what they were supposed
to do,” he said, “and through circumstances like a late-life divorce or a death
of a spouse or having to raise grandkids, have put them in a situation where
they are not able to make the bills.”
For Lawrence Sedita, a 74-year-old former carpenter now living
in Las Vegas, the problems began when he lost his health insurance about two
years ago. He said he had been on disability since 1991, when a double pack of
12-foot drywall fell on his head at work.
After his union, the New York City District Council of
Carpenters, changed the eligibility requirements for his medical, dental and
prescription drug insurance, he lost his coverage.
Mr. Sedita, who has Parkinson’s disease, said his medical
expenses had risen exponentially. (A spokesman for the union declined to
comment.)
A medication that helps reduce the shaking — a Parkinson’s
symptom — rose to $1,100 every three months from $70, Mr. Sedita said. “I
haven’t taken my medicine in three months since I can’t afford it,” he added.
He said he and his wife, who has cancer, filed for bankruptcy in
June after living off their credit cards for a time. Their financial
difficulty, he said, “has drained everything out of me.”
Doris
Burke and Alain Delaquérière contributed research. Graphics by Karl Russell.
A version of this article appears in print on Aug. 5, 2018,
on Page A1 of the New York edition with the
headline: Bankruptcy Booms Among Older Americans as Safety Net Frays. Order Reprints | Today’s Paper | Subscribe
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