Older Americans facing increased financial troubleIts not uncommon for older Americans to struggle under the weight of credit card debt and medical bills, and because of this, many older Americans are turning to bankruptcy. In fact, a 2010 study from the University of Michigan Law School found that those who are 65 and older are the fastest-growing segment of the U.S. population seeking bankruptcy protection. Older Americans are also increasingly carrying large balances on their credit cards with an estimated average of $10,235.
Why are older Americans increasingly in financial trouble?
Studies have found there are multiple factors contributing to the rise of debts for older Americans. The issues most often cited are medical costs, unemployment and health issues, but experts also suggest much of the problem seems to be that older Americans are carrying 50% more credit card debt than younger debtors. Of course, this is not just a problem for the elderly.
Experts suggest, Americans collectively owe roughly $2.4 trillion on their credit cards and consumer debts. Experts also note its not unusual for many individuals to live off their credit cards prior to filing bankruptcy which would increase their credit card balances.
So what should Older Americans do when they start to have financial problems? Unfortunately, a seniors options may be limited. For instance, younger workers may have the option to work more hours or get a second job, but for older Americans, especially those who are disabled or who cannot work, this is not an option.
Another issue is what experts call financial exploitation. Apparently its not unusual for a seniors wealth to be depleted by family members or friends, leaving the senior with little savings and an inability to care for themselves.
Should anyone raid their 401K?
So if you are in financial straits and you are a worker should you deplete your 401K to solve your financial issues? Obviously, in some emergency situations you may not have any other choice, but experts suggest raiding your retirement savings should be your last choice. Most financial experts advise their clients look for other ways to solve their debt crisis.
One option may be to take a loan out on your 401K. For instance, most 401(k) plans will let you borrow up to $50,000 of your vested balance. All loans have to be paid within 5 years from the date the loan is given, exceptions exist if you are buying a primary resident, but the loan interest rate is generally low. Unfortunately, if you leave your job the loan must be paid immediately.
Although a 401K loan may seem like a good idea most experts suggest it can result in opportunity costs, especially when the market is doing well. Statistics also suggest people who tend to take loans from their retirement savings are often what is termed serial borrowers.
So whether you are a senior facing a financial crisis or a young worker the problem may come down to the same thing: discipline. Putting a budget together and sticking to it. Not living beyond your means and not buying something you cannot afford. But not everyone is undisciplined. Some individuals, especially the elderly, face circumstances which were simply beyond their control. In this case bankruptcy may be your only option.