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When the American dream goes bankrupt

By Robert Trigaux, Times Business Editor
Published April 30, 2007

If, as I suspect, the barrage of stories warning that Americans are not saving enough fails to motivate better retirement planning, try this on for size.

Personal bankruptcy filings by people 55 and older are growing faster than those by any other age group. Why? The quick and easy answer is - duh! - folks miscalculated and spent more than they saved.

If only it was that simple. Think of it in two steps.

First, folks approaching or in retirement made certain assumptions in their lifetime about how much money they would need to live in reasonable comfort. Now those assumptions are being blown out of the water by a host of unexpected, rising costs.

Second, these cost-pressured folks are resorting, reluctantly, to buying necessary items - mainly expensive medicines - on credit cards, and even tapping home-equity lines of credit to "carry them over" the hard times. Many apparently are not making it over the hump.

A study released last week found that bankruptcy petitioners older than 45 increased from 27 percent of filers in 1994 to 39 percent in 2002. The fastest growth in Chapter 7 filings occurred for petitioners older than 55.

The analysis was done by John Golmant and Tom Ulrich, researchers at the Administrative Office of the U.S. Courts. Unlike other studies based on surveys, these researchers evaluated actual data from courts and public records. Their findings are summarized in the May 2007 issue of the American Bankruptcy Institute Journal.

The study points to the growing amount of mortgage debt carried by older Americans as they tap into their home equity, and rising health care costs as primary reasons behind the growing bankruptcy rate for those 55 and older.

This is not a momentary blip. The researchers said the trend of reduced income in retirement and escalating health care costs means increasing bankruptcy filing rates for older Americans likely "will persist into the foreseeable future."

Their findings mirror those by Demos researchers who found that the number of older Americans filing for bankruptcy tripled from 1992 to 2001.

Here in Florida, rising mortgage debt and medical expenses are just a piece of the escalating costs. Who could have anticipated the remarkable price hikes in homeowners insurance or the recent and rapid rise in electricity rates? Who considered $3-a-gallon gas?

The issue may soon take on an added urgency. Corporations are keen to do away with traditional pensions, the kind of retirement packages that guaranteed a fixed monthly payment to workers for life. Now employees are urged to build their retirement savings in 401k accounts and the like. Unlike old-style pensions, these retirement accounts require individuals to be disciplined savers and then monitor and even partially manage their nest eggs.

There's a red flag here.

Many retiring boomers are heading here in the coming decade. Many won't be prepared financially. Many may be stunned that low-cost Florida is low-cost no more. And if the latest trends hold true, many, painfully, may end up bankrupt.

Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

[Last modified April 27, 2007, 22:08:26]