In his 1931 book called Epic of America, author James Truslow Adams introduced the term “the American Dream.” He defined it as: “that dream of a land in which life should be better and richer for everyone, with opportunity for each according to ability or achievement.” For years, anecdotal evidence has suggested that the American Dream has been getting harder and harder to achieve in the face of shrinking savings, mounting medical costs, and dwindling pensions. What, though, does the research say?
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The August 2018 paper entitled “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society” published as part of the Indiana University Maurer School of Law Legal Studies Research Paper Series reports on mounting bankruptcies amongst increasingly vulnerable American seniors.
The study has found that American seniors’ golden years are increasingly likely to be in-the-red. The rate at which Americans over 65 have filed for bankruptcy has more than doubled since 1991. Approximately 100,000 American seniors filed for bankruptcy annually by 2016. The spike in bankruptcies for older Americans appears unique. .
Bankruptcy filings by Americans between 18 and 24 dropped by 77% during the same period. For Americans between 25 and 34, fillings fell by 64%. Filings for bankruptcy by Americans between 35 and 44 fell by 40% from 1991 to 2016. The trend began to change for Americans between 45 and 54 during the same period. Filings fell, but by just two percent. The statistics change starkly in relation to Americans over 55. Americans from 55 to 64 filed 66% more bankruptcies in 2016 compared to 1991. Finally, as stated above, Americans over the age of 65 filed 204% more bankruptcies in 2016 than in 1991.
The percentage of Americans over 65 in the nation’s bankruptcy system has increased by more than five times
In 1991, 2.1% of Americans who filed for bankruptcy were over the age of 65. By 2016, that same statistic had increased to over 12%.
Those American seniors involved in the bankruptcy system have an average “negative wealth” of $17,390. On the other hand, American seniors who are not entangled in the bankruptcy system have over $250,000 in accumulated wealth. In an era where savings have shrunk, medical costs have mounted, and pensions have dwindled, American seniors find rescue and relief nowhere but in bankruptcy court.
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The study conducted by the American Bankruptcy Project investigated the root causes of bankruptcy filings by reviewing questionnaires completed by 895 filers ranging in age from 19 to 92. Three prominent factors were identified by seniors amongst that cohort.
- Approximately 60% of seniors surveyed who filed for bankruptcy cited unmanageable medical expenses.
- Over two-thirds of seniors surveyed who filed for bankruptcy attributed their bankruptcy at least in part to decreases in income.
- Almost 75% of seniors surveyed who filed for bankruptcy lay some responsibility for their bankruptcy filing at the feet of debt collection efforts by creditors.
Data from other sources and collected for other purposes supports these findings.
The Employee Benefit Research Institute reports that the median senior-led household in 2016 had liquidated savings of approximately $60,600. There was, however, a wide range of savings levels found across senior-led households. The bottom quarter of senior-led households had liquid savings of no more than $3,260. For many seniors, those savings were vulnerable to quick exhaustion in the case of a medical crisis. Yes, American seniors could rely on Medicare — to some extent — but several Medicare-related factors are forcing seniors to rely on and even exhaust savings despite support from Medicare and even to the point of bankruptcy. Three such factors are:
- There are gaps in Medicare coverage for which seniors are relying on dwindling savings to fund medical care.
- Medicare premiums are high.
- Medicare policies increasingly require that seniors bear some of the costs of care.
As of 2013, the average American senior who relied on Medicare was still required to spend 41% of their Social Security cheque on out-of-pocket medical expenses.
At the same time that an increasing proportion of Social Security cheques are being consumed by out-of-pocket medical expenses, seniors are carrying an even higher debt load than in the past. For example, in 1989, mortgages amounted to 21% of American seniors’ debt. By 2016, though, that had nearly doubled to 41%. The Employee Benefit Research Institute has determined that 13% of households led by someone over the age of 55 are required to make debt payments that consume over 40% of their income. That’s a percentage that has almost doubled since 1991, and a trend that seems certain to contribute to the spike in bankruptcies filed by seniors as those 55-year-olds age.
How much debt seniors are carrying — or liable for?
A fourth and less often acknowledged contributor to the rate of seniors’ bankruptcies in America is just how much debt seniors are carrying — or liable for — for other people… often their children. One big piece of the American dream is a commitment by parents to making sure the future their children face is better than the life they lived themselves. One way that many parents —including senior parents — do that for their children is by loaning them money and guaranteeing their debts.
More than one-third of the seniors surveyed by the American Bankruptcy Project reported that their bankruptcy was brought about at least in part by the fact that they had helped other people — their children, and even their own elderly parents. That “help” may have been in the form of gifts, private loans, or even guarantees of the other person’s debts, including student loans in the tens of thousands of dollars.
In 1959, an advertising campaign for a new retirement community first used the phrase “the golden years” to describe a retirement lifestyle of leisure. For an increasing number of Americans, the American Dream has become a nightmare as they age. And the hope of experiencing golden years was long ago washed out in a sea of red ink.