Jewish World Review March 8, 2004 /15 Adar, 5764
Jan L. Warner & Jan Collins
Bankrupt seniors now the debt generation
Q: My wife and I are in our mid-70s. I'm retired from a mid-level government job, and my wife only worked part-time because of our decision for her to stay home to raise our three children, who, we are proud to say, are all educated and working.
But we weren't so fortunate: We have lost more than 40 percent of our modest nest egg (stock portfolios and IRAs) in the last few years, and have not been able to recover financially. We're waiting for the "economic recovery" to come to our house, but have not yet heard the knock at the door.
Instead, we're finding that when we take more money from our IRAs to pay expenses, more of our Social Security is taxed. This has left us doing what we always told our children not to do: use credit cards to make ends meet. The rates on the seemingly good, low-interest credit card deals have continued to increase, and we are finding ourselves slipping further and further into the hole, amassing more than $20,000 in credit card debt. We're afraid that we will outlive our money, and I am concerned that, if I die first, my wife will be left destitute and homeless. Are we doing something wrong, or are all seniors feeling the pinch?
A: You certainly are not alone. We have been receiving an increasing number of questions from our readers about the financial pinch of this "economic recovery" on seniors. Based on recent studies, the credit card debt of Americans over age 65 appears to be rising to epidemic proportions, with a nearly 90 percent increase over the past 10 years.
According to one study by Demos, a public policy group. seniors on fixed incomes owe more than $4,000 in credit card debt. This is attributed not only to the stock market tumble, but also to increasing costs of medical care and prescription drugs in this "non-inflationary" economy. Since most seniors can't just go out and work a few more hours to take care of their rising expenses, they turn to credit cards. And, as you and many seniors like you have learned, credit card debt is very expensive given rising interest rates in a flat economy and late fees for tardy payments.
According to the American Bankruptcy Institute, the seniors who filed for bankruptcy protection last year had nearly $36,000 in credit card debt, compared to $18,000 for those filers between ages 40 and 49. And it is truly frightening to learn that not only has the number of Americans over age 55 who seek credit counseling grown substantially, but the number of those over age 75 seeking such help is growing even faster.
Instead of college students and yuppies, seniors are fast becoming the "credit card generation," spending more than 30 percent of their income on debt payments. And, unfortunately, by the time seniors seek counseling, it's often too late.
Unlike our federal and state governments, which can operate with huge deficits and not be foreclosed against, seniors have no such protection. Analysts tell us that if you make investments in the stock market, you must be patient, expect fluctuations in your portfolio, and give it five years or more to recover.
Unfortunately, seniors with immediate, and unanticipated, needs don't have the luxury of five years. Some seniors may want to consider a reverse mortgage to handle unfunded monthly liabilities. These debt instruments allow you to use the equity in your home and not repay it until you move out or die. Credit counseling is a prerequisite.
Who would have thought that our "Greatest Generation" would be facing these trials in their golden years? Since you may be facing just lip service your elected officials, increased property taxes, and increased medical costs as the years go by, be proactive in your planning don't put it off another day.
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JAN L. WARNER received his A.B. and J.D. degrees from the University of South Carolina and earned a Master of Legal Letters (L.L.M.) in Taxation from the Emory University School of Law in Atlanta, Georgia. He is a frequent lecturer at legal education and public information programs throughout the United States. His articles have been published in national and state legal publications. Jan Collins began co-authoring Flying SoloŽ in 1989. She has more than 27 years of experience as a journalist, writer, and editor. To comment or ask a question, please click here.
How can we help ease Dad's depression?
How can we help ease Dad's depression?