Baby Boomers & Bankruptcy

Since 2010, bankruptcies have declined by 50.7%, the second lowest number since 1990. Recent research published by The Economist suggests that this overall decline masks significant trends among age groups. BK rates among those over 55 are rising. There are a number of factors behind the trend, one being that the generation now reaching retirement (baby boomers) have always been prone to “going bust.”

Findings from the University of Idaho show that the proportion of all bankruptcy filings made by people over the age of 65 has climbed from 2% in 1991 to 12% between 2013 and 2016. The bankruptcy filing rate has declined over these two decades for those aged 54 or younger.

Across all age groups, job losses, income declines, and medical expenses have long been leading reasons for bankruptcy. Researchers site less generous Social Security, riskier pension plans and higher out-of-pocket spending on medical care as leading reasons for this emerging trend.

Many Americans have no way of supplementing Social Security through savings or private pensions. According to the Employee Benefit Research Institute, in 1979 84% of private sector employees with a pension had at least some element of guaranteed retirement payment in their plan. By 2014, only 28% had any level of defined benefit while the rest were completely reliant on plans that contributed to investment funds with payouts dependent on fund returns. This change significantly shifted investment risks from employer to employee as well as leaving retirees with complex decisions about how rapidly to spend down their retirement accounts, both of which increased the risk of financial misfortune.

As well as smaller and less reliable income flows, older people are facing rising costs for health care. Despite public support from the Medicare program, the Medicare and Medicaid spending report shows that out of pocket spending averaged $2,938 a year in 2012 for those over 65 –that compares to an all-age average of $1,016 and is 20% higher than the figure in 2002.

But while tougher circumstances may play the major role in the greying of American bankruptcy, the data also points to a generational effect at work. In 1991, data from the Consumer Bankruptcy Project suggests the highest bankruptcy rates were among those aged between 25 and 44. In 2001, the highest rates involved the same generation of Americans, now aged 35 to 54. In the period between 2013 and 2016, a little more than ten years later again, the highest rates of bankruptcy were amongst those aged 45 to 64. The trend seems to follow the Baby Boomers generation.

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