It’s that time…the Baby Boomers are approaching retirement age. For a variety of reasons (medical expenses, declining home values, downturns in the stock market, etc.) many aren’t able to retire while maintaining a good standard of living. Some aren’t able to retire at all or they have to take a second job to cover expenses after they “retire.” For others, they find that the only solution is to file for bankruptcy. When attempting to avoid filing for bankruptcy in retirement, it’s important to identify the causes of bankruptcy for retirees.
Between 1994 and 2004, the number of individuals over the age of 65 who filed for bankruptcy tripled. The following are the causes for the extreme increase in the number of bankruptcies filed by retirees:
- Credit Card Debt: Some enter retirement with credit card debt and others find themselves accumulating it after retirement. Credit card companies market towards retirees aggressively, but the interest rates offered are high and paying them off on a fixed income is very difficult.
- Increasing Costs of Healthcare and Medication: Pharmaceutical companies are increasing drug prices at never before seen rates. For instance, the price of 26 brand-name drugs increased by 100% in 2007 alone. For retirees who require several medications, this can create a real financial strain (and can add to the probability that they may end up with increasing balances on credit cards).
- Declining Stock Market: Many retirees saw their retirement savings drastically decreased or even wiped out entirely by the declines in the stock market. They found themselves with not enough to live on/support themselves.
- Reduced Income: Retirees, generally speaking, have lower income levels than they did when they were working. Upon finding their retirement funds decreased, retirees look for ways to increase their incomes. Some try to find another job, but may find it difficult because of their age. They might rely on Social Security as their main form of income, but they could end up without enough money to live on.
For those who are trying to avoid filing for bankruptcy in retirement there are several things that can help.
Diversifying your portfolio is key to ensuring that your retirement savings aren’t wiped out by recessions or bear markets. Spread your money out amongst different types of investments: certificates of deposit, bonds, mutual funds, dividend-paying stocks, etc. This decreases the damage done to your portfolio when one type of asset performs poorly.
Getting a part-time job before retirement can also help retirees avoid bankruptcy. If you are building up for retirement, this is a particularly effective option. It increases your overall income before you retire. When you do retire, you’ll have that continued income.
Watch your spending even before you retire. If you try spending less and living on less before you are forced to by retirement, it will be less of a shock when the time comes. And you’ll know that you can do it. Learn how to get by on less now, before retirement requires that you do so. In addition, be aware of your debt and how it will affect your retirement finances. Try to enter retirement with as little debt as possible.
Retirees also see a few additional bankruptcy risk factors that those in other age demographics don’t have to worry about: lack of time to recover, inability to make more money, and having to work longer.
Declaring bankruptcy as a younger person means having time on your side. You’ve got time to recover from the consequences. As a retiree, the amount of time is limited. Retirees can have trouble finding employment if they try to come out of retirement and find work. This could force them to take more menial work for less pay. Another problem is that many retirees may find that they must work longer than expected because they have to recover from their financial hole they’ve ended up in. It might prevent them from actually enjoying their Golden Years as they planned.
If you find that you can’t make ends meet and you need a fresh start to enter retirement debt free, contact the southern California bankruptcy attorneys at Westgate Law.