Hate to be the bearer of bad news, but it turns out many baby boomers are going bust.
An increasing number of baby boomers— who have more debt than previous generations — are filing for bankruptcy, reported Patti Waldmeir for The Financial Times, citing a 2018 report called “Graying of US Bankruptcy.”
To be more specific, the number of older Americans filing for bankruptcy has surged by up to 300% in the last 25 years. The average senior files for bankruptcy more than $17,390 in debt.
Why is that the case? Here are a few reasons:
- Rising medical costs definitely plays a role. In fact, 66.5% of all bankruptcies, regardless of age, are related to medical issues, either because of expensive medical bills or time away from work, reported Lorie Konish for CNBC, citing a study by the American Journal of Public Health.
- Unlike their frugal parents who lived through the Depression, baby boomers are more inclined to get into credit card debt. Many still have student loan debt.
- Pensions are disappearing and boomers, who are living longer, often have scant savings to fall back on.
- According to the study, many boomers experience a decline in income.
- Delayed full Social Security benefits and increased out-of-pocket spending with Medicare add to the problem.
Unfortunately, bankruptcy is not a cure-all since many baby boomers don’t have enough years to get back on their feet financially. “Bankruptcy is not and never has been a panacea, especially for older people,” the study points out adding that those who were older and filed Chapter 7 were significantly more likely to continue to experience financial struggles post-bankruptcy.
Although bankruptcy can’t always be prevented, there are some steps boomers can take to avoid this outcome.
Obviously, it’s important to pay off debt and save more while you’re still working. To accomplish this, you may need to put off retirement. The good news is that studies of healthy aging suggest that working longer can have a number of positive physical and psychological effects. Experts say that engaging in productive and social activities at work can help maintain meaning and a sense of purpose in life.
Already retired? Lots of retirees have embraced a second career, usually part-time, to supplement social security benefits. Why not look for ways to create new opportunities and seek experiences that broaden your horizon while making some extra money?
If needed, stop financially supporting adult children. About 40% of people in their early 20s get financial help from their parents, to the tune of $3,000 per year on average. If this describes you and it’s causing a financial strain, meet with your kids to discuss how to scale back. Do not co-sign loans for your children or grandchildren either – especially student loans – which leaves you on the hook if they don’t service the debt.
Pay off your mortgage before retiring. Many mortgages allow you to make additional payments toward the principal. Consider downsizing and simplifying your life to help achieve this goal.
Take control of your spending. Limit eating out. Get rid of cable and watch your favorite shows online. Avoid pricey hobbies. Look for free community events like concerts in the park. Cut up credit cards. Quit expensive habits like smoking and drinking. Rediscover the library. In other words, be tough with yourself now so your Golden Years aren’t tarnished with debt and bankruptcy.