What Is Driving the High Bankruptcy Rates Among Older People?

According to data from the Consumer Bankruptcy Project, the highest rates of bankruptcy in 1991 were among people between the ages of 25 and 44. In 2001, the highest rates were among those between 35 and 54 — the same group. Between 2013 and 2016, this same generation accounted for the highest rate of bankruptcy, although they were now between 45 and 65. That generation was the Baby Boomers.

Bankruptcy rates overall have fallen since the Great Recession. In 2010, not long after the foreclosure and banking crises came to a head, there were 1.6 million bankruptcies filed in the U.S. By 2017, that number had dropped to about 789,000 — the second-lowest number of bankruptcies since 1990, according to the Economist. Nevertheless, bankruptcy is on the rise among those 65 and over.

This is a relatively new phenomenon. According to a University of Idaho sociologist, in 1991 only 2 percent of people over 65 filed for bankruptcy. By the period between 2013 and 2016, that number had jumped to 12 percent.

What Happened to Make Aging Boomers so Prone to Bankruptcy?

The Baby Boom generation was affected by, and often the driver of, social change. Today, researchers point to three specific factors to explain the financial difficulties Boomers find themselves in during retirement: less in Social Security, less-generous retirement plans, and high out-of-pocket medical costs.

According to an economist at Boston College, the average Social Security payment has declined in value over the years. In 1980, Social Security replaced approximately 48 percent of a retiree’s average pre-retirement earnings. In 2010, they only replaced about 38 percent.

The Employee Benefit Research Institute points to another factor: pension plan changes that have become much less generous over time. In 1979, 84 percent of such plans included a defined benefit, which is paid by the employer at the same rate regardless of market conditions. By 2014, only 28 percent of workers had any defined benefit aspect to their retirement plan. The remainder rely entirely on investment-based plans like 401(k)s.

Finally, today’s retirees are being hit with high out-of-pocket costs for their medical care, even though those over 65 are enrolled in Medicare. In 2012, the average annual out-of-pocket cost for someone 65 or over was $2,938. That’s 20 percent higher than in 2002 and more than twice the average annual out-of-pocket cost for Americans in general ($1,016).

Over the last decades, these changes have shifted more of the risk of financial misfortune away from organizations and toward the individual. It’s not surprising that some members of our largest generation have been unable to weather the change.