We’ve been forecasting that there would be profound social and economic consequences as a result of the shift from defined benefit plans to defined contribution plans, and the proof is starting to become more evident.
According to the Federal Reserve’s survey of consumer finances, bankruptcy’s for older Americans are exploding at the same time that the universe of older Americans is burgeoning! On the surface, it appears that younger Americans are fairing better, but we know that there are more 18-34 year-olds living at home or with a relative than ever before (Pew Research Center). We also know that student loan debt is growing leaps and bounds, which is keeping Millennials from saving for retirement, which will only add to the problem for older Americans in the decades to come.
In addition to the loss of traditional pensions, older Americans are forced to wait longer for Social Security and they are incurring greater out-of-pocket medical expenses. We’ve witnessed a three-decade shift from government and employer support of the American worker to a situation in which the individual is being asked to carry this burden. It is not ending well for many.
“The people who show up in bankruptcy are always the tip of the iceberg,” said Robert M. Lawless, a law professor at the University of Illinois and another author of the study. The next generation nearing retirement age is also filing for bankruptcy in greater numbers, and the average age of filers is rising, the study found. Given the rate of increase, Thorne said, “the only explanation that makes any sense are structural shifts.”
We know that many Americans are carrying greater sums of debt into retirement than ever before. Furthermore, there is a growing wealth gap among Americans. According to the Employee Benefit Research Institute (EBRI), the median household lead by someone 65 or older is roughly $60,600 (2016), but the bottom 25% have at most $3,200, a sum which certainly doesn’t provide for protection should unexpected medical expenses occur.