More Older Americans Are Filing for Bankruptcy Than Ever Before

The great American Dream of retirement is under attack. We must save our future.

One of the great American inventions of the 20th century is the idea of secure retirement for all. In our not-so-distant past, we recall that families took care of elderly grandparents and great-grandparents on their own, bearing great economic and emotional stress along the way. And if your kids or grandkids didn’t want to take care of you in your dotage—or if you didn’t have any living family—you were basically on your own.

Through the creation of Social Security in 1935, and through the establishment of anti-poverty programs in Lyndon Johnson’s Great Society, the federal government changed the idea of what it means to grow old in America. Though no system is perfect, Americans united in pursuit of a common goal: the idea that no matter what went wrong, Americans would be able to grow old with dignity. They’d have access to medical care and food and shelter in their twilight years.

Slowly and surely, though, the government has backed out of the bargain.

This week, professors Deborah Thorne, Pamela Foohey, Robert M. Lawless, and Katherine Porter published a dramatic new study which demonstrates the sad reality of aging in America. From the abstract of the paper:

Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system…In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net

Senior citizens in our country are filing for bankruptcy at epidemic rates, and they’re carrying more debt than at any time in modern history. And the pace of debt is accelerating as time goes on. The report finds that the median debt carried by senior households “more than doubled” between 2001 and 2013, from just over $18,000 to $40,000.

This is a significant reshuffling of our national priorities, and a clear warning sign that entire generations of Americans could wind up on the streets.

What are the reasons for this rise in senior bankruptcies? Obviously, the social safety net has been under consistent attack from trickle-downers on the right and the left since the 1980s. The report cites a couple of factors:

  • Full Social Security benefits kick in at the age of 70 now—and not 65, as it did for generations.
  • Even with Medicare protections, elderly Americans still spend 20 percent of their income on healthcare costs, up from 12 percent in less than two decades.

But when you look beyond government programs, the pensions that used to be provided by employers have disappeared, too. Senior Americans rely on 401(k)s, which are wildly unreliable because they depend on the stock market and which doesn’t pay out at rates anything near what pensions did.

So when your retirement funds, which you’ve been dutifully contributing to for your entire life, fail to provide the security you’ve always planned for, you’ve got to come up with other plans. Either you work for as long as you can, or you find new sources of revenue, or you’re destitute.

Here in Seattle, and across the United States, more and more people are treating their homes as investments. If I had a dollar for every time an older Seattleite told me they considered their home to be their retirement plans, I’d have a sizable contribution to my 401(k) by now. The problem with this investment philosophy is twofold: first, it’s reliant on an endless supply of wealthy homebuyers; and anyone who lived in Seattle in the crash of 2008 can tell you that home prices are just as subject to fluctuations as the stock market.

Unless we correct our course, more and more baby boomers are going to find themselves underneath a mountain of debt that they simply can’t begin to repay. And if the economy can survive the toxic legacy of that generation’s debt and bankruptcy, it’ll be time for Generation Xers like me to retire—and my generation is already way behind on retirement savings. If things continue in this way, by the time millennials prepare to retire it’s hard to imagine that there will be any retirement structure left. By 2050, the authors point out, nearly one out of every four Americans will be over 65.

One of the great things about this study is that it provides meaningful historical context to retirement in America. In the first paragraph, when I said that we remember a time when families took care of their elders? The authors point out that this is a myth:

“For much of the United States’ history, older Americans were viewed with contempt and treated as outcasts,” they write. “Many spent their final years homeless or in an equally awful poorhouse.”

We are facing down a crisis because we stopped investing in our elders. We have to confront this crisis before elder Americans are living on the street in huge numbers. We cannot allow trickle-downers to continue to stack the deck against elderly Americans by slicing Medicare to bits and eroding unions. We have to reward employers who support robust pension plans. And we must ensure a future in which Americans continue to happily participate in society for as long as possible.

Insecurity is the enemy of a stable civilization. If you’re waking up every morning in a state of panic about how you’re going to pay rent or buy food, you’re not able to participate as a member of a community. When enough members of the community fall prey to insecurity, economies and social mores start to fail in an ever-growing negative feedback loop.

When enough Americans realize that retirement doesn’t come standard as a part of the American dream anymore—that old age is the latest casualty of income inequality—the bargain falls apart. Without the security of a happy old age before us, the foundations of American society will be under attack.