You may be surprised to hear, and I admit I was surprised too, that bankruptcies in one sector of our country have increased dramatically. The sector of our country where bankruptcies are on the rise is not the millennial generation but rather, it is senior citizens.
If you go back to 1991, less than 2.5 percent of the bankruptcy filers were 65 or older. You fast forward to today, 15.5 percent of the bankruptcy filers are 65 and older. I’ve said many times that bankruptcy is a tool that people in severe financial shape should utilize to get their financial house in order. After all, corporate America uses it to their benefit, and therefore, individuals should also use bankruptcy where appropriate. However, with seniors, by the time they file for bankruptcy, generally whatever savings and assets they’ve had are pretty much gone, and they do not have enough years to regain their wealth. Wiping away debt to get a fresh start for someone in their 30s, where they have their entire life ahead of them, is not the same as someone in their 70s who has to start over. The bottom line: Seniors more than any other age group need to make sure they keep their financial house in order to protect themselves.
There is no doubt that today’s seniors face different challenges than seniors in the past. Medical care costs, as well as the general cost of living, have gone up substantially; and that coupled with a low interest rate environment, has hurt seniors. Many seniors who traditionally invest in things such as CDs and government bonds, receive a much lower rate of return on their money than they did in the past. Although interest rates are rising and CDs and U.S. treasuries are paying higher rates of return, the reality is their costs continue to rise faster. As a result, seniors have to be smarter with their money.
One of the problems that seniors are running into today, that they didn’t necessarily run into in the past, is that many are still financially helping their children and now even grandchildren. In fact, I recently met with a senior who asked my opinion about co-signing a student loan for their grandson. I unfortunately had to be the bad guy and tell them that if their grandchild did not make payments on the loan, and they had to step in, their financial situation would be dire. I think it is wonderful when a senior wants to help children and grandchildren; however, they cannot do it to the detriment of themselves. I cannot stress enough that before a senior agrees to co-sign a loan or make a gift to their family, they need to consider the financial consequences. Unfortunately, all too often too many seniors think with their heart as opposed to their head. As difficult as it is, sometimes seniors have to learn to say no.
It is important for everyone, particularly seniors in retirement, to keep track of their expenses and what it costs them to live. Today is not like the past where the older you got the less it costs you to live. Today, it is the exact opposite. To be financially secure, you need to make sure that you can have a rising income the rest of your life. I can guarantee that someone who’s in their 60s today will spend a lot more money to live in their 80s than they do today. Therefore, before seniors gift money, co-sign a loan on behalf of a family member, or take out any debt, they need to think twice. This is a time in your life where you need to be selfish and you need to make sure that your financial future is secure. Again, it’s not like someone who’s in their 30s and starting over; yes, it’s difficult, but they can get a job and start rebuilding their wealth. Someone in their 70s or 80s, it’s not so easy to get a job, and you do not have the time to regain your financial security. Therefore, seniors must be smart with their money.
At the same time, it’s important for children and grandchildren not to put unnecessary pressure on their parents or grandparents. Before you ask your parent or grandparent for financial assistance, you need to consider their finances, and you should not assume that they have the resources to assist you.
As the baby boomer generation ages and more and more of them enter retirement, I fear the number of bankruptcies by seniors will continue to rise. Therefore, it’s imperative for all seniors to look at their finances and to make sure before they gift money or incur additional debt, that they are financially secure. Financially secure means your finances are such that you can have a rising income throughout your lifetime.
Good luck!
If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.