Over the past few years, millions of older Americans have found themselves in a much more challenging financial position than they ever imagined. The American Dream, which once included a comfortable retirement at age 65 courtesy of pensions, Social Security and savings plans, has been replaced by something somewhat unexpected — seniors strapped with stifling debt.
American senior citizens are estimated to be the fastest growing age group to plummet into bankruptcy. An increased cost of living combined with mounting health care costs and minimal savings are considered the main contributors to this crisis.
A study completed by the University of Michigan Law School indicated bankruptcy among seniors doubled from 3.5 percent to 7 percent from 2002 to 2010. These numbers continue to grow as seniors continue to struggle with a tough economy.
Credit Card Trouble
According to John A. E. Pottow, a law professor at the University of Michigan, seniors carry 50 percent more credit card debt than younger people. In fact, credit cards are listed as the largest pitfall for senior citizens.
Faced with overwhelming health care costs, older people are often forced to use credit cards to make ends meet. Between the high cost of prescriptions, nursing homes, hospitalization and funeral costs, older Americans no longer have the income, sufficient health insurance coverage and/or the cash needed to take care of daily living or emergency needs. The issue is perpetuated as seniors live longer, requiring more years of health care and living expenses.
According to the University of Michigan study, nearly 70 percent of people 65 years old and older who filed bankruptcy in 2007 named credit card interest and fees as their biggest problem.
Many American senior citizens feel backed into a corner with credit card debt, hefty mortgage payments and property taxes, as Social Security pays for only the very basic needs. More than 30 percent of people 65 or older have a mortgage with a median balance of $56,000.
No Chance to Rebuild Financially
Another challenge for senior citizens is their inability to bring in the income they require to make a significant change. Older people may find it difficult to find employment as they compete with younger generations for salaries in a sluggish job market. They are not able to earn the extra money they need to keep up with the increased cost-of-living nor are they able to rebuild themselves financially like a younger person might.
Studies indicate all social classes are affected by this debt crisis. The Center for Retirement Research at Boston College stated that among households headed by people 65 and up with incomes over $100,000, 25 percent have mortgage liabilities.
As a result, some senior citizens are forced to refinance their homes or enter into a reverse mortgage in an effort to pay off their escalating debt. This is not an option for everyone, however, as the dramatic change in home values has significantly reduced home equity.
The problem is likely to continue for future generations as fewer Americans are able to set money aside for retirement because of the ever-struggling economy. In 2009, an estimated 75 percent of people were directing money into a retirement account. In 2012, this number fell to 66 percent. The extra cash they may have delegated for their future must now pay for an increased daily cost of living.