Every month, 73-year-old Suzan Benge lives on just $771 in disability payments, $100 in food stamps and $14 in state low-income subsidy. So when her credit card debt hit $18,000 earlier this year, she felt she had little choice but to join the rising tide of American seniors filing for bankruptcy.
The elderly are far more visible in U.S. bankruptcy courts these days than in previous generations. Baby boomers 65 and older are racking up far higher levels of debt than their parents, who were raised during the Great Depression, and a growing minority are finding themselves tipping from desperate financial trouble into bankruptcy.
The fate of seniors living on the edge was highlighted last year in data from the Consumer Bankruptcy Project, a long-term academic study that has been collating information on U.S. bankruptcy filers since the early 1990s. According to a 2018 report …
1 in 7 people who file for bankruptcy in the U.S. are now age 65 or older — an almost fivefold increase over just 25 years.
In 1991, those 65 and older made up only 2 percent of bankruptcy filers, but by 2016 that had risen to more than 12 percent, says Robert Lawless, one of the report’s authors and a professor at University of Illinois College of Law. About 800,000 households filed for bankruptcy that year, which works out to approximately 98,000 families or about 133,000 seniors since many file jointly as couples, he adds.
Over the same period, the elderly grew as a percentage of the U.S. adult population, but only from 17 percent to 19.3 percent. The trend is a side effect of several colliding social and economic forces in the United States that are making the later years of people such as Benge extremely stressful. Seniors are living longer and paying ever-higher medical costs for the privilege of staying alive; many have little or no company pension and scant personal savings to fall back on.
In 1989, only 1 in 5 Americans age 75 or older were in debt; by 2016, almost half were, according to the most recent U.S. Federal Reserve 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 upper-income Americans had more than recovered from the post-2008 recession, but the wealth of lower- and middle-income families was at 1989 levels, highlighting the long-term rise in income inequality in the U.S.
As these low- to middle-income families age, many are being pitched into debt-burdened retirement by several structural trends, including the decline of trade unions, with their power to negotiate real wage increases, good pensions and retiree health care packages; the disappearance of defined benefit pension schemes; steep health care inflation; and a sharp rise in middle-class families helping pay for children to go to college.
“The baby boomer attitude to debt has not turned out to be as frugal as you would think it would be, having parents who lived through the Depression. Partly it’s because they have jobs that don’t keep up with inflation and they might have to have five or six jobs to make ends meet,” says Kevin Leicht, head of the sociology department at the University of Illinois. “They have to be really skilled to come out the other side with a pension they can live on for 25 years. Companies have offloaded all the risk onto employees.”
After the Great Depression, the U.S. gradually built a financial safety net for retirees, based on Social Security payments to supplement company pensions or private retirement savings and Medicare to pay for most health care costs. But by the end of the last century, this “golden age” of retirement security was largely over.
Seniors who start Social Security payments before the age of 70 are heavily penalized. Most companies have switched to 401(k) retirement plans that fluctuate with the stock market, leaving retirees bearing all the risks; and the rising cost of health care has left many seniors with large out-of-pocket bills that are not covered by Medicare — for many Americans, at least $100,000 per person over the span of their retirement.
Leicht says many baby boomers face this problem of an endlessly 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 60 can’t be 60 anymore. To make a 401(k)-based system work, you have to contribute steadily to it for 40 years and that requires a lot of self-management” — not to mention spare cash to put into it.
Catherine Collinson, CEO of the Transamerica Center for Retirement Studies, says we tend to think of today’s generation of retirees living in the “golden era of the defined benefit plan” with a guaranteed income. But this is a myth.
“Only 35 percent had a company-funded pension plan and only 60 percent have any kind of retirement account or personal savings,” Collinson says, adding that a quarter of retirees in the U.S. have an annual household income of less than $25,000.
By the standards of Suzan Benge that’s a lot of money: Her annual income totals just over $10,000. But thanks to bankruptcy, she’s got her recliner, her toilet paper and her year’s supply of dish soap. “Up to a few months ago, I was making three credit card payments and it was eating up my entire income,” she says. “Now I feel rich.”