If you measure the state of the U.S. economy strictly by how things are going on Wall Street, or by the core unemployment number, it's pretty easy to say things are peachy.
But those are hardly the only stats that matter, and in this clip from Motley Fool Answers, hosts Robert Brokamp and Alison Southwick start off with a "What's Up, Bro?" segment that focuses on a troubling trend: Bankruptcies among the elderly are rising at a fairly alarming rate, according to a new analysis. And what put these seniors in the red? According to the professors behind the study, "inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net." The duo discuss the findings, and what people can do in the face of those broader issues.
A full transcript follows the video.
This video was recorded on Aug. 21, 2018.
Alison Southwick: So, Bro, what's up?
Robert Brokamp: Well, Alison, if you look at the typical metrics of an economy's well-being, we're doing pretty well, nowadays. Second quarter GDP came in at a healthy 4.1%, unemployment is at a very low 3.9%, and the stock market is up for the year so far.
Southwick: What do you know that I don't, Bro?
Brokamp: Nothing. Absolutely nothing. But not everyone is in good financial shape and one group that is at risk is a subset of senior citizens who have little room for economic error. That's one takeaway from a recent report entitled, Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society. It's brought to us by four professors: Deborah Thorne, Pamela Foohey, Robert Lawless, and Katherine Porter and I'll just read a little bit from the abstract.
"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."
But it's not necessarily an epidemic, so here's some of the stats. From February 2013 to November 2016 there were 3.6 bankruptcy filers per thousand people in the 65-74 age group. So 3.6 per thousand. But in 1991 that number was just 1.2 per thousand. It's the trajectory of the trend that is worrisome.
What are the causes? Well, according to a survey that was done for the report, about three in five said unmanageable medical expenses played a role and we've seen this in every age group.
Southwick: I could have told you that without even reading the report.
Brokamp: Right. A little more than two-thirds cited a drop in income. Many said bankruptcies came from helping others. A little more than one-third of the older filers said that they were helping either their children, or their parents, or other relatives. A big part of it nowadays is more and more parents and even grandparents are co-signing for kids' student loans.
Also, more people are entering their later years carrying debt. Roughly 41% of people in 2016 in that age group [65-74] had a mortgage and that's 41% compared to only 21% in 1989.
And one of the overall themes of the report is that part of this is just that risk has been sort of transferred over the last three decades. People are now more responsible for their own retirement savings in the 401(k) type of situation vs. a classic defined benefit plan. Out-of-pocket healthcare expenses have gone up. Fewer companies are offering retirees health insurance. So this whole collection of factors are what is driving this.
I have to say that whenever I hear a study like this, I'm a bit of a mixed mind. On the one hand, many people are in these situations through no fault of their own. When The New York Times wrote about this, they talked about a guy who was a carpenter. He became disabled when some equipment fell on him. Then he got Parkinson's. He wife got cancer. And he was getting health insurance from his union but then they dropped him. Like there's nothing that guy could have done about that and for someone like him, that's what bankruptcy is for. Like it's his last resort.
When The Washington Post wrote about it, they talked about a woman who's retired in her late '60s and is just living on Social Security. They didn't really say much else other than she had to rely on credit card debt and, at some point, it became unmanageable and she had to declare bankruptcy. In that situation there might be other stuff about her that wasn't in the article, but the bottom line is she probably shouldn't have retired. She's someone who probably should have kept working.
So in the report, you can definitely see that they're advocating for some societal changes. That government is really the only entity that can step in and take care of a lot of this. The thing is we don't know if and when that's going to happen. Obviously not everyone agrees with that. What should individuals do?
The first thing? I think what we have to do as a society is to accept that when it comes to retirement, 70 is the new 65. Most people should not really think about retiring until they're age 70. That's for economic reasons. But I've done a lot of reading, recently, about whether retirement is actually healthy for people and the evidence is basically mixed. There are definitely studies that have shown that for some people -- they look at a group of people -- and the people who retired earlier experienced more health issues. Greater risks of a heart attack and things like that. There are other studies that find the opposite. You may have heard about what they're now calling the epidemic of loneliness. It's a global phenomenon. The U.K. now has a minister of loneliness and it's more pronounced for older people because...
Southwick: It sounds like it's from Harry Potter. The minister of loneliness.
Brokamp: It affects all ages, but it particularly affects older people. For a lot of people their No. 1 social network comes through work. They leave work -- especially if they're not married and they don't have kids or they live far from their family -- and they're lonely. So there are lots of other reasons to consider working longer, as well.
For me, the bottom line is before you retire, you definitely need to get a professional opinion of whether you are ready, and you have to factor in some sort of cushion so that in case you are getting a pension that eventually gets cut, or you're getting health insurance from an old employer that gets eliminated, or you have health problems that you didn't expect; that kind of cushion has to be built into the plan.
So get that professional opinion whether you're financially able to retire, but also really think about whether you're emotionally able to retire and whether even working just part-time in your '70s is the right thing for you to do.