Why A 204% Increase In Bankruptcy For Older Americans Is A Bigger Threat Than You May Realize
Sep 10, 2018
As an elder law attorney, I see with much more frequency than most how certain issues related to aging cause financial distress in ways that families never expected...and certainly didn’t prepare for. That being said, even I was surprised to read some findings recently put out by the The Federal Reserve’s survey of consumer finances, via the Consumer Bankruptcy Project, about the drastic increase in bankruptcy filings for older Americans (age 65-74).
This study found that filings by older Americans increased by a whopping 204% in the years between 1991-2014. The reasons why, unfortunately, are not surprising to me - but they may be to you.
It is very important to understand that these reasons, especially the two outlined below, are ones that can happen to any family - even families that were financially “secure,” or thought they were. That is why it is so important to understand the root causes of this massive increase - so that we can be vigilant for ourselves, and for our loved ones.
To sum up, there are two major factors driving this sad result: healthcare and dependent adults.
First, and most importantly, the cost of healthcare is a major contributor. Specifically, costs related to out-of-pocket healthcare spending are drivers of economic collapse for many Americans, but hit older Americans particularly hard. Why?
From my experience, it is clear that most people do not have a realistic view of what their lifetime out of pocket medical expenses will be. In this sense, we are talking about both the “everyday” costs - like the things insurance doesn’t cover for routine issues, but also for long term care.
The data confirms my experience. For example, the Center for Retirement Research at Boston College found that out of pocket expenses, NOT including long term care, eat up an average of 18% of a retiree's total income. For many, this is a shock, because in figuring their retirement expenses, they really didn’t take these out-of-pocket expenses into consideration, or at least didn’t plan for them to eat up so much of their income.
Additionally, almost no one is actually prepared for the devastating financial impacts of long term care. For example, most people don’t realize that Medicare, and Medicare supplemental policies, do not cover long term care expenses. Very few people have long term care insurance, and even those that do have it often find that it doesn’t quite fit their needs in the ways they expected it to.
In southeast Michigan, you can expect long term care costs to run all the way up to over $14,000 a month - and that can be completely devastating to a person’s lifetime savings.
The second older Americans are filing for bankruptcy at such high rates is that they are often carrying the financial burden for others.
I call this the “secret” of families - because in my work as an elder law attorney, I see it so often - but it is something that people really don’t like to talk about.
In our culture, it is common to pick on Millennials as the burden on parents. Yet, so often, we see much older children being partially or even completely supported by their parents - “children” in their 40s, 50s, and even 60s.
There are many reasons this occurs - when a older child experiences a financial setback due to a job loss or a divorce, for example. The problem is that, for some, this setback becomes a permanent dependency on older parents - and the money that was saved for a safe retirement is eaten up at a much higher rate than anyone expected.
All is not gloom and doom, however. The key is to careful planning and an “eyes wide open” view of what going into older years really looks like. For this, it is essential that you get the right advice - not from your neighbors or friends, but from professionals. Tax, financial and legal advice are all a part of this equation. For families, it can mean all the difference between financial security, and financial ruin. Learn more about Elderly Care here.