Seniors and Debt: How to Cope with Financial Setbacks Post-Retirement
If financial curveballs in your golden years have left you feeling anxious and insecure, saddled with bills and debt, you are not alone. There are plenty of proactive steps you can take to get yourself back on more solid financial footing. This guide will address some of the common money challenges seniors face, then provide a series of steps you can take to safeguard your finances and respond to a crisis.
10 of the Most Common Financial Challenges for Seniors
Many of today’s seniors were raised not to talk about money, but that can leave you feeling like you’re the only one who’s struggling. You’re not. Even the best-laid financial plans can fall short when life surprises you — and it always seems to do so at the worst possible time. Maybe the bottom dropped out of the housing market right after you put a chunk of your savings into real estate. Or perhaps that part-time job you were using to supplement your Social Security check went away when the coronavirus hit.
Maybe you’re still dealing with the fallout from the 2008 recession, or perhaps an unexpected dental problem cost you a bundle. Unfortunately, there are a lot of events that can sucker punch you financially in retirement. The obvious questions are: What are my options and how do I turn things around? Of course, the answers depend on your situation. Here are some of the most common things seniors like you are facing.
According to Fidelity Investments, a 65-year-old couple retiring in 2019 could expect to spend $280,000 on medical care during retirement. That’s a hefty chunk of change. Cost estimates like these are so worrisome that, in a 2019 AARP/University of Michigan poll, 45% of Americans ages 50-64 said they had little or no confidence that they’d be able to afford health coverage upon retirement. So, if you’re worried, you’ve got plenty of company.
Oral care can get more complicated as you get older, with the cost of root canals, cavities, crowns, or dentures eating into your savings. The CDC reports that 96% of adults 65 and older have had a cavity, and 1 in 5 have untreated tooth decay. That same proportion — 1 in 5 — have lost all their teeth, and slightly more than two-thirds have gum disease. Yet according to the Kaiser Family Foundation, 37 million people, or 65% of those on Medicare, had no dental coverage as of 2019. Half of Medicare recipients hadn’t seen the dentist in the previous year, and 19% spent more than $1,000 out of pocket.
Being widowed is not as big a risk factor for poverty as it once was, but a spouse’s death can still lead to significant financial challenges. Whereas 37% of new widows became poor in the 1970s, that figure fell to between 12% and 15% by the 1990s. Still, a recent Congressional Research Service report on poverty found that the figures haven’t changed much since then: While 4.3% of married women live in poverty, 13.9% of widows do.
Poverty rates were even higher for divorced women than for widows in the CRS study, at 15.8%. Divorces can be expensive for both parties, often costing an average of $15,000 per person — and that’s just for the divorce itself. Afterward, you’ll become a single-income household, losing out on financial advantages such as joint tax filing and lower auto insurance rates.
And while a University of Maryland study of divorce rates found the rates dropped between 2008 and 2016, it also found the highest rate of divorce was among those 55 and older, and those who had been married more than 30 years.
The Great Recession of 2008 presented huge challenges, and in some ways, the economic fallout from the COVID-19 pandemic has been even worse. From February 2 to March 20, 2020, the Dow Jones Industrials shed 5% of their value, including a single-day decline of 12.9% on March 16. The losses of 2007-2009 were more sustained (at least so far), with the Dow Jones falling 53.7% over roughly a year and a half.
Every downturn is different, with different causes and varying consequences: While the Great Recession was the result of financial imbalances, the pandemic’s financial crash was created by an external factor: the coronavirus itself and the self-quarantine measures meant to contain its spread. In both cases, however, large channels of cash simply vanished, leaving investors with tough choices and hardships.
Many of us have experienced the frustration of having to call a plumber to deal with a water leak flooding the basement or a roofer to patch a leaking roof. The need for home repairs is seldom expected, and the cost can be difficult to absorb.
Replacing your roof can set you back $5,000 to $10,000. A new septic system will likely cost you at least $3,000 — and perhaps up to three times that much. Replacing an air conditioner, fumigating your home for termites, rewiring your electrical system, and fixing your foundation are other hefty bills you may encounter without warning.
As we age, we can begin to require more help, and the costs of at-home care or a nursing facility are significant. The average cost of a home health aide in 2019 was nearly $4,400 a month, and even a semi-private room at a nursing facility can cost more than $7,500 a month. That’s more than what you’d spend to stay at a five-star hotel in Seoul or Brussels, and you’d even have some money left over for a dinner out.
If you’re paying off a mortgage, credit card debt or even student loans (did you cosign one for a beloved child or grandchild?), that can eat into your disposable income, too. There’s also the ever-present creep of inflation, which has averaged 2.4% over the past 30 years.
Are your kids still living with you, or are they planning to move back? It’s not unusual these days for kids to move back home with their folks (or just never leave in the first place). A survey by TD Ameritrade found that parents expected their kids to move out of the house — and even be able to treat them to dinner — by age 20. But half of young millennials say they plan to move back home after college, and nearly one-third plan to stay for two years or more.
Senior citizens are often targets for scams via phone calls, email phishing, and other means. Products ranging from bogus medical insurance to counterfeit prescription drugs are commonplace, as are schemes from funeral and cemetery fraud to investment fraud. Identity theft is an ever-present threat. There’s even a scam in which a caller will impersonate a grandchild and say, “Hi, Grandma. Do you know who this is?” in order to establish a fake identity. Life savings can be lost in the blink of an eye.
These are just some of the many challenges you may find yourself facing as a senior citizen. But take heart, because there are steps you can take to minimize your exposure to crisis and prepare yourself for financial challenges. We’ll take a look at these below.
Take Stock to Understand Your Financial Situation
Avoiding a stressful situation won’t make it go away — and neglect could cause it to get worse. Proactively address your money challenges by starting with a thorough and unflinching inventory of your financial standing. Use the checklist below to help you keep track of all the steps you’ve completed. (Each step is explained in greater detail beneath the checklist.)
List and total up all your sources of debt and the amounts owed for each. And don’t just include the raw figures: Factor in interest amounts and repayment terms, as well. Pay special attention to any credit card debt. This rate bottomed out in 2012 after the Great Recession, but started climbing steadily again after that. As of 2018, the average credit card debt in the 65-74 age bracket was $5,500.
That credit card or personal loan you signed up for without your spouse’s knowledge? It might not be such a good idea. A poll by CreditCards.com reveals that 44% of respondents hide a checking, savings, or credit card account from their significant other. If you’re each accumulating debt without the other knowing, collectively you could end up with twice the amount to pay off, or more. Come clean so you can take a full inventory and know where you really stand.
Now it’s time to list all your monthly expenses, including both fixed and variable expenses — all of them. It’s easy to remember only your regular monthly bills without considering annual, biannual, quarterly, and other recurring or occasional expenses. So once you’ve listed the easy stuff, ask yourself questions like these:
Factor all these fluctuations and additional expenses into your budget. To help you include every regular expenditure, look through your check register, ledger, or any other record you keep of your financial transactions. It’s easy to remember your mortgage and car payments, but did you include your internet and cellphone bill? You may have more regular monthly expenses than you realize. Make a list — or better yet, create a spreadsheet to help you keep track.
Once you know your ballpark amounts, use them to help you devise a budget that covers them as well as your outstanding, incidental expenses — like gasoline, groceries, clothes, pet food and other essentials. And then, stick to it.
With anything left over, set aside an emergency fund. Experts recommend an amount equal to three to six months of regular expenses. Once your budget is solid and your fund is full — and only then — can you use what’s left in the piggy bank to treat yourself to dinner and a movie (or, instead, to start saving up for that gadget or painting you’ve been eyeing or the vacation you’ve been wanting to take).
Since so much depends on your credit rating and its relative health, it’s always important to survey your credit scores and do everything you can to improve them. Even if you have no intention of applying for a loan, close monitoring also can alert you to errors or issues with your credit, including possible incidences of identity theft or fraud attempted by other parties.
Three major credit bureaus track your credit scores: Experian, Equifax, and TransUnion. These are publicly-traded companies — regulated by the Fair Credit Reporting Act and monitored by the Federal Trade Commission. They tally your score based on on-time (and late) bill payments, defaults, and amount of debt you carry.
Because your credit rating can affect everything from your employment and housing prospects to the interest rates you get on credit cards and other bills, it’s worth knowing your score even if you don’t plan to take out a loan. If you stay on top of it, you won’t risk a rude awakening at the last minute if you find yourself in need of cash.
And here’s some good news: You can obtain a free annual credit report by phone, mail, or the internet. Many banks also now update your credit score weekly or monthly on your account page at no extra charge.
Next, look into sources of economic aid that are available to eligible seniors. Include tax credits and benefits programs. If you’re a homeowner, you can claim residential energy credits, and if you’re retired from your office job but still working from home, there’s a home office deduction. That’s just the tip of the iceberg, too.
There’s also a host of government assistance programs available for seniors. Benefits.gov offers Benefit Finder, an interactive questionnaire that lets you input your information to help figure out which programs you’re eligible for. Here are a few of the major federal programs for seniors:
Also, in addition to a nationwide listing of 2,500 senior programs that’s searchable by ZIP code, the National Council on Aging website offers answers to a number of questions about benefits for seniors. Among the topics are:
Once you have a handle on your expenses and potential benefits, there’s one more step that’s vitally important: Do not take on more debt! That means for yourself, your kids, or your grandkids. If you’re on a fixed income, think about “fixing” your expenses as much as possible, too (while leaving some room for unexpected bills, of course).
Discuss the possibilities with someone else, preferably someone level-headed whose judgment and motives you trust. Ask questions like: Do I want to include my child or grandchild on my bank or credit card account? Do I want to cosign for a student loan or car loan? Then play out the possible scenarios that could happen with each course of action.
Take into account how responsible your younger partner is, and — just as important — how much debt you could afford to cover if things go wrong. You even might want to start by assuming they will go wrong; that way you’ll know that if they do, you’ll already have made a plan to absorb the extra expense.
If you’re not sure what to do, check with a certified financial planner to help you map things out.
Financial Options to Help You Meet Your Money Challenges
You’ve done the difficult groundwork of assessing your financial situation, devising a workable budget, and even researching and applying for senior benefits from the federal government and other sources. Now you can check out other possible avenues to help you grow and/or safeguard your assets.
Insurance is one way to protect yourself from getting in over your head in the event of a crisis. You’ve got a couple of options when it comes to life insurance:
Be sure to stay on top of your insurance payments: One survey found that seniors were losing $112 billion in life insurance benefits each year by letting their policies lapse or surrendering them. Assess your insurance options with a certified financial advisor who works for you (not for an insurance company) to learn your best options.
According to the U.S. Securities and Exchange Commission, allocating assets in a mixture of stocks, bonds, and cash can be a solid strategy. Because these three major categories historically haven’t moved up and down in value at the same time, keeping a mix of investments can guard against losses. Other options, such as precious metals and real estate, also may be worth considering.
The same can be true with diversification: choosing a group of investments rather than placing “all your eggs in one basket.” Professional financial advice can help you make the right choice for you.
It pays to look at the way you’re carrying debt. Are your credit card interest rates too high? You might consider changing vendors. Also, check into your options for consolidating debts at a lower interest rate. You’ve got a few options when it comes to consolidation:
Moving to a smaller space can have numerous advantages. Time-honored financial advice is that housing expenses should not be more than 30% of your monthly budget. The home that fit comfortably in your budget while you were working may no longer be affordable once your income is reduced in retirement. Downsizing can reduce your monthly rent or mortgage payments, and probably your utility bill, too, since you’d be heating and cooling a smaller space.
There are also psychological benefits to being more selective and mindful about your possessions. Many people who have downsized say their only regret is not doing it sooner. The more you declutter and reduce, the more simplified and satisfied you’re likely to feel. You’ll probably enjoy your surroundings more, and become more productive, as well.
Also, you could clear out the attic and sell those antiques at a yard sale, on eBay, or via another online marketplace to make some extra cash in the bargain.
The SEC defines an annuity as “a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future.” People generally buy annuities to help manage their retirement income, and may invest in one of three kinds:
If you’re hit with a financial crisis, regularly short of money to pay your bills, or in need of greater financial liquidity, you may want to consider accessing money you’ve got tied up in an annuity. It could be worthwhile to talk with your financial advisor about these three options for selling:
A few potential downsides to consider: If you sell an annuity too soon after you purchase it, you should realize that the insurance company will charge you a “surrender fee.” Also, if you withdraw money before you are 59½, you may have to pay a 10% tax penalty to the IRS. There may be other tax implications, as well.
If you’ve retired, you still have a wealth of experience to draw upon, plus a great résumé. You’ve got institutional knowledge and training that companies have to pay to provide younger workers. There’s nothing that says you can’t put these advantages back to work for you. If you do, you’re not alone. A lot of seniors are re-entering the workforce, and others never left: In a 2017 survey, half of workers 60 and older said they planned to keep working until age 70, and 20% didn’t expect to ever retire.
If you want to find a new gig, there’s full-time, part-time and freelance work available. Job search websites such as Indeed, Glassdoor, Monster, and CareerBuilder match applicants with prospective employers, and networking sites like LinkedIn can help, too.
But there’s nothing to say you need to return to the same line of work. Instead, you could:
Some people go back to work to earn extra income, while others just want to stay engaged. Either way, there are plenty of possibilities open to you.
There are a few options for using your home equity. If you want to explore them further, consider speaking to a financial advisor. One bit of information worth knowing: Under federal law, you have three days to reconsider a signed credit agreement and cancel without penalty. Here are some possibilities to think about:
Roommates? At your age? Well, yes! Think “The Golden Girls.” This arrangement can work especially well if you’re widowed or divorced — but if your kids have moved away and you have an extra room, that can work, too. (Just be sure your significant other is agreeable to the idea, first.)
But remember: If the roommate is paying you rent, or even if they’re working in exchange for a place to stay, they’re not just a roommate but a tenant. Even if you don’t own the property but are renting yourself, a roommate can become your tenant if they’re paying you for the right to stay there — a practice known as subletting.
If you and a roommate come to an agreement, and they promise to pay you a monthly sum but never even give you a dollar, they could still be considered a tenant. You may need to take them to court in order to lawfully evict them, so be sure to speak with a lawyer if this happens.
Make certain you get along well with any potential roommate, and try to make sure the person is trustworthy and dependable before you create a roommate agreement, whether oral or written. Even if they’re friends and you’ve known them for a while, it’s worth thinking twice beforehand. Good relationships have gone sour over bad business arrangements, so ask yourself whether you’d be willing to risk hard feelings if they can’t pay or you don’t get along in close quarters.
Extreme steps like foreclosure or bankruptcy should be taken as a last resort, but in some situations they make sense. You have two options under personal bankruptcy law:
There are three types of foreclosure:
Again, if you’re considering any of these possibilities, consult an attorney to determine the best course of action.
Other Smart Ways to Protect Your Finances
Besides the many official avenues you can pursue, there are plenty of other practices you can keep in your back pocket to help you make the most of your money. Consider the steps below to further stretch what you’ve got to spend and keep safe what you’re trying to save.
Many senior discounts are well known, such as the plethora that come with an AARP membership, but there are many others you might not know about. Keep in mind that different deals kick in at different ages: Some start at 65, but you might be eligible for others at age 60, 55, or even 50. Other discounts are available on certain days: Many Goodwill stores offer discounts on particular days of the week, and Ross has a 10% off deal for shoppers 55 and older in its Every Tuesday Club.
Here are just a few areas for which discount opportunities are available:
It’s equally important to review your bank and credit card statements, and report any unauthorized purchases. Credit card apps and online banking can make the process easier, allowing you to view balances and statements online anytime.
Consider signing up for these other convenient banking services that can help you track and regulate bills, spending, and other aspects of your economic life:
To avoid getting calls from telemarketers, you can sign up free of charge to join the National Do Not Call Registry, where you can register your home landline or mobile phone number. This won’t keep all organizations from calling you — political groups, charities, and debt collectors are exempt — but it will help insulate you from scams and unwanted solicitations. After your number is placed on the registry, you can report unwanted sales calls. And even if it isn’t on the list, you can report robocalls that use a recorded message instead of a live person.
Finally, a prudent overall tip: Be careful who you trust to manage your finances should you become incapacitated. You should have a plan for such a situation, but make sure you put in safeguards and accountability (for example, oversight by a second trusted person).
Loved ones can have a difficult time making important decisions regarding your health and finances if they aren’t prepared ahead of time. So it’s worthwhile to designate beforehand who you want to make those decisions, and then put in place a clear plan that’s easy for them to follow. Be sure to discuss this with your chosen representatives ahead of time to make sure they’re willing and able to carry out your wishes.
Life-changing events such as heart attacks and strokes can happen suddenly, and other debilitating conditions such as Parkinson’s, Alzheimer’s, and dementia can creep up gradually without anyone realizing it. That’s why it’s important to have a plan in place for both your finances and your healthcare — which, in many cases, will overlap.
When you’re creating such a plan, it’s worth asking and answering the following questions:
There’s a lot to think about when it comes to protecting your finances and making prudent fiscal decisions as a senior citizen. It’s always a good idea to talk to a credit counselor or financial advisor and, in some cases, a lawyer. Government agencies can also provide help, and so can nonprofit advocacy groups. The more information you’re able to provide and the more questions you are prepared to ask, the more helpful it will be in your quest to manage your money and optimize your quality of life.
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