Column: Bankruptcy is hitting more older Americans, pointing to a retirement crisis in the making

Whether America is facing a “retirement crisis” in which seniors are making do with shrinking financial resources has been widely debated. But here’s a telling metric: Seniors are making a larger share of bankruptcy filings.

That’s the finding of a new paper by academic researchers affiliated with the Consumer Bankruptcy Project, which periodically samples personal bankruptcy filings from all 50 states and the District of Columbia. “Older Americans are increasingly likely to file consumer bankruptcy,” they write, “and their representation among those in bankruptcy has never been higher.”

The figures should worry advocates for seniors, because in terms of the overall financial health of the 65+ cohort, it’s likely to be the tip of the iceberg. “Only a small fraction of those who are having financial troubles file for bankruptcy,” one of the authors, Robert Lawless of the University of Illinois law school, told me. “So this is part of a much bigger story about financial distress among the elderly.”

It’s true that the elderly have been the beneficiaries since the 1930s of America’s strongest and most successful social safety net. The system was born with Social Security in 1935, which aimed to reduce the scandalous poverty rate among seniors. It was followed by Medicare and Medicaid in 1965, which offered relief for healthcare, and culminated in the Medicare prescription drug program enacted in 2003.

During that same period, a sizable percentage of American workers were covered by corporate defined-benefit pensions, producing what retirement experts have called “a brief golden age” when many American workers could retire with confidence.

Over the last few decades, however, confidence in that safety net has ebbed. Defined-benefit plans have given way to defined contribution plans such as 401(k)s, which saddle workers with all the risk of investment market downturns — and in which wealthier workers are overrepresented, both in enrollment rates and balances.

Some older Americans may have more access to retirement income than their forebears, but they’re also carrying more debt. The share of Americans still carrying mortgage debt when they reach age 65 rose to 38% in 2013 from 22% in 1995, according to the Joint Center for Housing Studies at Harvard. Their mortgage balances also have risen over that period, to $73,000 from $27,300 in inflation-adjusted terms. Despite Medicare, medical expenses remain a large component of seniors’ financial burdens.

It’s also proper to keep in mind that the stagnation of wages for workers is certain to have an impact as today’s workers move into retirement. Jobs that once offered a stable middle-class income with benefits have morphed into low-wage jobs without job security, healthcare or pensions. Workers struggling to make ends meet in an economy in which corporate profits are approaching a post-recession record aren’t likely to become suddenly flush in their retirement years.

The bankruptcy paper has sustained some criticism from commentators who believe the retirement crisis has been exaggerated. Kevin Drum of Mother Jones observed, fairly enough, that the bankruptcy rate for the 65+ cohort hasn’t changed at all over the last 15 years, and the run-up in the rate during the decade 1991-2001 reflects a sharp increase in the rate among all Americans — and that increase began in the mid-1980s.

But I would argue that more seems to be going on here. To begin with, the bankruptcy bulge seems to be moving up the age ladder. In 1991, 8.2% of all bankruptcy filings were made by households led by people 55 or older; by the 2013-2016 period, their share was 33.7%. According to the new paper, the bankruptcy rates among all age groups 54 and younger have fallen since 1991, but the rates for all groups 55 and older have risen.

This isn’t related to the general graying of the U.S. population. As Lawless observes, the over-65 population has risen by 16% since 1991. But bankruptcy filings in that cohort have increased by 2 ½ times.

“This is not a trend, but something qualitatively different in what we’re seeing,” he says.

Lawless and his colleagues point out that while bankruptcy is a last resort for any debtor and nothing like the panacea it’s often depicted to be, it’s an especially dire choice for seniors. Unlike younger debtors, seniors don’t have years ahead of them to rebuild their household finances while their debts are held in abeyance. “By the time they file bankruptcy,” the paper observes, “their wealth has vanished.”

America has some serious policy choices to make, and pretending that seniors are living the high life on Social Security doesn’t clarify matters, especially as the claim is typically made by conservatives as a rationale to cut Social Security and Medicare benefits.

The figures on bankruptcy suggest that the opposite is necessary — expanding Social Security and increasing benefits to shore up retiree resources against the decline of personal savings and pension income. The guaranteed retirement accounts advocated by a number of retirement experts — personal accounts funded by workers and employers during their working years, supported by a tax credit and a government guarantee against loss of principal—are a promising option. America has more than enough resources to make sure, as it did in the 1930s, that its seniors won’t be facing their last years fearing penury.

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