The stereotypical image of a bankrupted person is a forty something who lived beyond their means their entire life.
Somebody who has spent their hard-earned money on frivolous things like sports cars and exotic holidays until they finally ran out of money and had to petition the bankruptcy court to bail them out.
You’d never imagine them as being a 70 – 80 year old American with a mountain of unpaid debt.
But the issue is that bankruptcies among senior citizens have increased by 204% since 1991, and it’s an almost vertical trend.
To put some perspective on that figure it means that 12% of all bankruptcies are now filed by senior citizens. Source: Consumer Bankruptcy Project
So why exactly is this happening?
1. Life Expectancy
An unpredicted “side effect” of all the available yet expensive health care is that people are now living longer. Senior citizens are now living to 79 years of age on average, but often well into their 80s.
If you consider that most people retired between the ages of 57 and 65, that means they have to fund their current lifestyle, on a reduced income, for at least 22 years.
2. No Savings
It’s a sad fact of life that approximately 70% of American retirees have under $1,000 in savings. They instead rely on social welfare payments and government financial assistance to get by.
This means they’re incapable of paying any unexpected bills that can and do crop up in their twilight years, often forcing them to use credit cards and remortgaging to pay their day-to-day expenses.
It’s not uncommon for a senior citizen to file for bankruptcy because they owe $20,000 – $30,000 in credit card debt alone.
3. Co-Signed Debts
A worrying number of American senior citizens find themselves before the bankruptcy court because they co-signed a car or personal loan for one of their children or grandchildren.
That makes them legally liable to repay the loan if and when their child or grandchild stops making payments, something they’re unable to do because of their reduced income as a retiree.
The simple act of trying to provide financial help to a child or grandchild often backfires on them in the worst possible ways.
4. Utility Payments
One of the most cited causes for bankruptcy is an increase in the cost of utility bills. Data shows that utility costs have increased dramatically in the last 20 years alone, and that trend does not seem set to change.
In many cases this leaves senior citizens without water or gas in their home for months at a time.
In some extreme cases senior citizens will file for bankruptcy for protection from creditors such as utility companies calling them and demanding payment.
5. Medical Expense
The baby boomer generation (people aged 65 years of age or older) is now entering the stage of life where medical problems become all too common.
Medical debt is the fifth item on our list but is the #1 cause of bankruptcy among senior citizens.
Fidelity Investments has calculated that the average American will need $280,000 to cover out-of-pocket medical expenses from the day they retire to the day they die.
When you compare that to the fact that most senior citizens have less than $1,000 in savings, you can see why bankruptcy becomes their only option when dealing with medical debt.
And with medical costs rising year-on-year, this issue will continue to be a challenge for senior citizens into 2030 and beyond.
Summary
Although most of us like to picture retirement as being a period of peace and quiet, living your life as you wish, the stark reality is that for many senior citizens it is the most stressful part of their life.
They’re often left to decide between paying their medical expenses and buying groceries each week.