Forbes published an article in 2019 that reported a rise in elderly bankruptcy, specifically for those elder households that earn a lower income. Over about two decades, the share of elderly bankruptcies has risen to 12%. That doesn’t sound like a lot, but in 1991, it had been 2%.
The number of people experiencing bankruptcy while in their sunset years is already disheartening, and we can likely only expect that number to increase. Many younger adults, particularly those in the Millennial generation, are afraid that costs of living will so greatly surpass wages, savings, and Social Security that they will never be able to retire or afford care in their later years.
Why are we seeing such an increase in elderly bankruptcies? The Forbes article cites a number of reasons, including credit card and student loan debt, skyrocketing healthcare costs, reduced financial protections or safeguards for retirement, and wage stagnation. These are unlikely to be the only factors impacting elderly finances, but they represent some of the major obstacles facing older adults in retirement.
A major concern, both for the current population of seniors as well as those generations to come, is the ability to leverage retirement accounts, such as pensions and 401(k) accounts, to pay for a decade or more of retirement. The use of pensions has sharply declined, with the market favoring instead a 401(k) style, which typically requires employees to contribute some portion. However, many employees today are faced with difficult choices in this regard – if the employer offers to contribute a percentage, some will use that option and contribute little or nothing to their 401(k) in order to better afford living costs in the immediate moment. The cost of living has gone up by 2.3% in just the past year. That may not sound like much, but imagine you stacked that increase every single year for the past three decades, and the financial landscape suddenly looks much different. Wages and salaries have not kept pace, which may force a number of employees of any age to make the choice to not save money for retirement or other savings accounts in order to afford the costs of living right now.
The Forbes article points out another problem with the 401(k) system that the pension system avoided: in order to contribute to a 401(k) and make full use of it, you need to be employed steadily for 30-40 years and make monthly or yearly contributions. We already know from the last decade that this type of employment is increasingly more difficult to come by, potentially setting up younger adults for a grimmer financial future than their elders are currently experiencing.
Seniors are also affected by rising costs of living. Many older adults are typically on a fixed income, meaning they receive a set amount each month from Social Security, survivor benefits, VA benefits, retirement or pension accounts, or other such means. But when healthcare costs go up, or gas, groceries, and utilities become more expensive, that fixed income won’t cover as much as it once could. Some older adults may find themselves in credit card debt trying to make ends meet.
If you have concerns about your finances or financial planning, talk to an expert in the field. You may want to ask someone for advice on how best to manage savings and retirement expectations, and how best to prepare. If you do find yourself in financial distress, please don’t hesitate to ask for help from an expert. The earlier you can receive qualified, trustworthy advice, the better.