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Debt Devastating Seniors

Debt Devastating Seniors

At a time when seniors should be enjoying their “golden years”, many are instead drowning in debt.

The statistics are startling. According to the Employee Benefit Research Institute many families headed by those 75 and older are overwhelmed by debt. They had increases in the incidence of debt, the average amount of debt and the percentage with debt payments that topped 40% of their income in 2010. However, those headed by households ages 55-65, and 65-74 had minor changes in these debt benchmarks, and in some households, there were even improvements.

For families with someone 75+ at the helm, average debt increased doubled from $13,655 in 2007 to $27,409 in 2010. What's putting seniors in the hole? According to EBRI, for households headed by someone 55 and older, the primary cause is housing debt – almost 75% of debt payments go to pay for housing among these families.

There are other culprits like medical debts, but what may be somewhat surprising is the number of seniors struggling because of credit cards and student loan debt. It's been widely reported that Americans 60 and over still owe about $36 billion for student loans. For a look at how credit cards are taking a toll on seniors, check out, this research paper. With so much debt, it's not surprising that seniors are turning to bankruptcy as a way out.

Jerome Lamet, attorney and founder of Debt Counsel for Seniors & The Disabled, is frank about where the heart of seniors problems lie, “The primary cause of senior debt is the high interest rates on credit cards. They can't afford 23% interest rates. They are being abused by the banking industry,” he says.

Lamet says his firm's average client has about $1,200 in monthly income, and debt of about $25,000. “They are charging prescriptions and things not covered by Medicare. It's not like they are running off to Las Vegas,” says Lamet.

He recently got a new client who had gone to the emergency room and stayed there for a few hours before the hospital decided to admit her. She stayed a week and got a $100,000 bill, says Lamet, who adds that Medicare covered only her ER visit.

As if the stress of owing, for a generation that likes to pay their obligations, isn't enough, he says the calls all day and night from creditors has a negative effect on many seniors' health. “With the loan shark rates, they will never get out of debt,” he says.

David Leibowitz, founder of Lakelaw, which specializes in bankruptcy, says seniors continue to be vulnerable to bankruptcy. He recently met a 63 year-old woman whose attorney husband died suddenly at home while she was recuperating from heart surgery. All her furniture, clothing and other goods had to be removed, owing to the decomposition of his body. “She faces insurmountable medical bills too, not to mention credit card debts. Her husband died without life insurance and she has limited income, just her husband's social security. “Bankruptcy is in her future,” says Leibowitz soberly.

He also has clients who are thinking twice about having been so generous. “Some seniors are dealing with the crushing debt of student loans they signed on for their college student children who went to school 10 years ago and still can't find work,” says Leibowitz.

Then too, some seniors can only look in the mirror for the reasons they are where they are. They failed to save enough for retirement. “One of the most important reasons seniors are unprepared is the shift from defined benefit plans to defined contribution plans. People are not required to contribute to 401k or IRA plans,” says Leibowitz. Some have saved, but when they get in a pinch, too frequently they withdraw from their 401k plans or IRA to meet present needs.

Debt management 101

Stories abound. The question is, what to do, how to move forward?

Seniors drowning in debt should look at their assets and liabilities. “If their assets are mostly exempt (most always the case) and their liabilities are insurmountable, they might consider bankruptcy, says Leibowitz.

Seniors could also be “judgment proof” meaning that creditors can never recover anything from them because all of their assets are exempt. Sometimes, a letter to creditors explaining that the debtor has no assets and no income from which recovery is possible, is enough to get creditors to charge off accounts, says Leibowitz. For example, 401k and IRA money is untouchable, as is social security, though pension income can sometimes be reached by creditors, it varies from place to place, says Leibowitz.

He advises seniors not to pay off creditors with the cash value of life insurance, 401k or IRA funds, or other assets which creditors can't reach.

Stand your ground. “Seniors should not allow themselves to be bullied by hyper-aggressive creditors. If hyper-aggressive creditors violate the Fair Debt Collection Practices Act, the senior should consult an attorney,” says Leibowitz.

If you are paying off your child's student loans, you may be able to get relief. “Although it is difficult to prove, payment by seniors on children's student loans might be a 'substantial hardship' entitling the senior to some level of relief in bankruptcy,” says Leibowitz.

Whatever happened to aging with dignity?

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paoli2   |     |   Comment #1
Sheryl:  Thanks for sharing another article with us.  However, you wrote:" almost 75% of debt payments go to pay for housing among these families."   Maybe it's just my way of thinking but I don't consider paying for housing especially if it includes rent as a debt as long as one has the means to pay it.  For example, we paid off our home some years back but due to a terrible event, lost it, and are now back to "renting".  As long as our rent is not overextending us with our income, I don't consider it a "debt".  Now if we were renting for more than what we could afford, that would put us in debt in my thinking.  I consider debt as spending more than one is taking in.  As long as we balance our budgets to make sure we are not spending more than we are receiving then I don't consider we are in debt.  Like I wrote, this may not be the correct way to determine income and debt but it is my way of keeping out of debt.
Anonymous   |     |   Comment #2
It's going to get worse because of  the CONSEQUENCES FROM QUANTITATIVE EASING.  Those senior savers who don't presently have debt problems are robbed of the interest on their savings via QE  1, 2, and now 3 via the artificial suppression of interest rates (Bernanke money-printing operations).  This is known by members of Congress but they seem to ignore it.  It takes time for savings to be depleted but when you are earning next to nothing on your savings, (no compounding of any interest because you did not get any), the process accelerates and the balance is depleted much more quickly than had you been earning 3, 4 or 5% interest as had been the case prior to QE.   It's now 5 years since the theft of interest began.  If this goes on for another 5 years, it will be much worse.

Let's not forget that 401Ks and IRAs have Minimum Required Distributions beginning after 70 1/2 years of age (IRS rules).  What do you think the balances will look like after 10 years of ZRIP?   Try using some of the calculators widely available on the Internet to see how it will apply in your own personal situation.

For those of us who see the handwriting on the wall, we each have to decide how to deal with the situation.   Some will go into the stock market like Bernanke wants, some will hunker down and spend less, and some will do nothing at all and let it go until they are out of funds to live on, taking on credit card debt as the need arises. 

It's all about risk and how much an individual wants to take on.   If I were in my 20's or 30's, sure, I'd have time to recover from potential losses in the stock market.  However, we are the age we are.  If we are a senior, that mean's most of us are over 65, and don't necessarily have the time to wait for a recovery from stock market losses.  So each of us has to make other plans to deal with the situation --- one of the prime reasons we follow the Deposit Accounts blog and do the best we can.
Anonymous   |     |   Comment #3
#2  You are so right about what you are posting.  If one has a good deal of savings in the IRAs and has to do the RMD, it can hit like a punch in the teeth!  I know the idea is to pay them the owed taxes but it also costs savers by making them pay more taxes on social security.  I guess that is better than having no savings to pay taxes on.  
Cracker   |     |   Comment #4
This is why I am glad I cashed in my IRA.  There is no real tax savings to have it.  The taxes must be paid eventually, so why tie your money up for all those years?  I prefer to have it under my control to do with it what I want, when I want.  I cashed mine in back in 2011 and paid the 10% penalty with no regrets.  I had virtually no other income that year due to being unemployed so my effective tax rate was about 20%.  I fully expect tax rates to be much higher in the future so I'm glad to have paid them now.

I can't believe anyone of retirement age would still have student loans.  That's absurd.  Why didn't they pay the debt during their working years?  The bad economy is a recent phenomenon.  They should have paid it back during the good times instead of letting the interest accumulate.  That's foolishness on their part.
Maecl   |     |   Comment #5
#'s 2 & 3, those RMD's are what I have been worrying about.
paoli2   |     |   Comment #6
Maeci:  They are very easy to do but, imo, can quickly help drain a savings unless one can afford to put some of it back into another CD.  If you have never done yours yet because you have not reached the big "age" 70 1/2, I would suggest you do a bit of pre-research on it so you will  know how much you will have to withdraw especially if you have more than one IRA etc. or there or two of you to do it for.  If your IRAs are in CDs you might want to make sure you have a CD maturing for the date you need to withdraw the money depending on how much you will need.  The larger your savings are, the more you should really take a look at things ahead of time.  The gov doesn't play "nice, nice" if we make mistakes on our RMDs.  Other way is to hire a tax specialist or some one who has experience with RMDs to help you.  If you don't need everything you have to withdraw, you can always put the rest into another "taxable" CD or whatever you want.  You just can't put it into an IRA.  I think we did a discussion on RMDs a while back that you might want to read to alleviate your concerns.
Shorebreak   |     |   Comment #7
"Whatever happened to aging with dignity?"

Those days are long gone, I'm afraid.  This country is now of the opinion that those who receive the paid-in benefits of Social Security, Medicare and perhaps a defined pension are merely on "entitlements" and sucking the life-blood out the economy, meanwhile ruining everything for future generations.  Then there is a Federal Reserve Chairman, one Ben Bernanke, that kicks these people down an endless flight of stairs through his brutal zero interest rate policy (ZIRP).  Why don't we just blame medical science for extending the lives of these people to an age where it's financially impossible to have a quality of life? What a country!
outtempster   |     |   Comment #8
extremely low interest rate is hurting Seniors. Say if something has $500K saving, that's a lot of money. They were expecting 5% income in long term CDs and the money is safe, which is $25K per year, now with 1% interest rate, it's $5K per year. With the so messed up US medical system, they can easily get into debt if they were hit by a big medical bill.
paoli2   |     |   Comment #9
Shorebreak:  I don't care about aging with dignity.  I just want to age with lots of "money". :)  Seriously, every word you post unfortunately is true but should we hate the fact that one day we all will be seniors and society will dispise us for still being alive?  Especially the ones like me who refuse to go without a fight.

Just think how much Mylanta I can buy if I live to be 95.  Why don't you be joyful and buy stock in Mylanta so you can also age with "lots of money".    Cheer up, it can only get worse and then what are we supposed to do?   I know.  Read Shorebreak's posts and drink LOTS of Mylanta.  :)  Try to still have a good Sunday inspite of what is going on. 
Shorebreak   |     |   Comment #10
If one is lucky they have the problem of spending-down principal so they can be broke upon their demise.
Anonymous   |     |   Comment #11
Just blame the congress and the presidents for their stupidity for making us all suffer. Now I feel better, it is not my fault.
Anonymous   |     |   Comment #12
There will be many more savers and retirees complaining as their CDs they bought pre-2008 start to come due in the near future.
Anonymous   |     |   Comment #13
For sizeable IRA accounts, the real threat will be the higher tax bracket you will be thrown into when you have to take the RMD at age 70 1/2. 
Anonymous   |     |   Comment #14
There are several credit unions including Pentagon that will allow you to take out all your RMD or more but you must leave at least $1000 in the CD. You can even take it out of the lowest paying IRA CD that you have with them with no penalty. This will include all your RMD even if some of your IRA's are at other institutions. 
Anonymous   |     |   Comment #15

Thanks for an excellent tip.  
Anonymous   |     |   Comment #16
Invever gambled in my life.  Thought of casinos/lotteries as purveyors of the poor/ignorant level of society.  Now going to the casino and buying lottery tickets, looking for the million to one shot to secure my future.  Thank you Bernanke and Greenspan  !
Anonymous   |     |   Comment #17
Can you tell what was  wrong with the person who had $100,000 medical bill with one week i the hospital. It is important to know what can cause this.
paoli2   |     |   Comment #22
#17  You, fortunately, have not had to be in the hospital these days.  It does not take much to run up $100,000.00 when they can charge $30.00 for a regular pill you take daily at home and refuse to let you give it to yourself.  Have you ever seen "any" hospital bill "before" they deduct for your health insurance's contracted prices?   They will charge over $2,000.00 for a cat scan but accept maybe $200.00 from the insurance company.  I pity anyone without health insurance.  It really doesn't matter too much "what" the reason is that you are in for one week, the charges will roll on faster than a slot machine in Las Vegas.  All those unfamiliar docs who drop in just to say "how are you this morning?" really means "Oh goody, another payment on my Mercedes!"  I never knew any of the ones who came in to say "hello" and sign the book so they could get their payment but it all gets put on the bill.  

  If it were not for health insurance, I think most people in this country who had to be hospitalized for whatever problems would all be bankrupt.  If you have decent insurance, don't worry about the $100,000.00 because your company will chop it to pieces and as long as you pay your copays, you can still feed yourself and Rollo you cat or doggie.
Shorebreak   |     |   Comment #18
At least there's one small bit of good news...

Why the Debt Collectors Won't Be Bullying You Anymore

Anonymous   |     |   Comment #19
To #17 Have heard of people being in the hospital for an extended time and not being formally admitted and having a large hosptial bill but not sure how you can be admitted and get a bill that high. Medicare I understand pays 80% when you are admitted. 
Anonymous   |     |   Comment #20
Well, I have been a retired senior for several years now and can say that my debt, which is zero, has not increased but my standard of living certainly has decreased. I have gone through the usual expense cutting, downsizing, etc and have just about cut everything to the bone. As far as I can tell, it does not look like things, financially, will be getting better anytime soon. Somehow, this just doesn't seem right when you consiider all the help that others are getting....welfare, food stamps, unemployment benefits, crop disaster payments, mortgage payment help and the like. I'll make it but it won't be easy.

Anonymous   |     |   Comment #23
#20:  I agree with you 100%.  When are the retired seniors going to get "something" for their stolen interest due them?  We need something like: tax-free RMD, special deduction for lnteret due, etc.
Shorebreak   |     |   Comment #21
Re: Anonymous - #20,Monday, July 22, 2013 - 8:40 AM

You are obviously not doing things right. Federal Reserve Chairman Ben Bernanke wants you to help the economy grow by borrowing huge sums of money (printed out of thin air), at historically low rates (punishing savers) and go out and buy new homes, automobiles, electronic gadgets and go on vacations to resorts. While you are at it, put your hard earned money into at risk assets like shares in the stocks of large Wall Street financial firms. The same firms that had their hands in the fiasco that is causing you to endure your "decreased standard of living".  Now, get out there are do your job!
Anonymous   |     |   Comment #24


You are 100% correct on the hospital methods of compensated care.  My mother was at the emergency room and then admitted in the hospital for four days.  There were five different doctors that seen her and actually only three that really did anything worth while for her.  As you said, I guess the other two doctors had to come by so they could be included on the bill to help pay for their new Mercedes. 
Anonymous   |     |   Comment #25
QE is actually beneficial to those described in the article since they have no savings and only debt they can pay back with increasingly cheaper dollars. I'm not sure on the value of this article besides pointing out how poorly people manage their finances (though #4 adds another example of bad choices because converting to a Roth IRA, rather than cashing out, would've avoided the 10% penalty and any future gains would also be tax free--the amount converted could be withdrawn without penalty after 5 years).
Anonymous   |     |   Comment #26
I don't know much about Roth IRAs.  Are you stating a person can convert a large lumpsum of what they have in the Traditional IRA to the Roth and they don't have to pay taxes on the money even when they withdraw it?   This makes no sense to me.
Anonymous   |     |   Comment #27
Not hardly,  you will pay income taxes on the withdrawn amount of the traditional ira, but if you are under age 59 1/2, you can avoid the 10% early withdrawal penalty if you convert the traditianl ira withdrawn amount into a Roth IRA. 
Anonymous   |     |   Comment #28
<He recently got a new client who had gone to the emergency room and stayed there for a few hours before the hospital decided to admit her. She stayed a week and got a $100,000 bill, says Lamet, who adds that Medicare covered only her ER visit.>

Sorry, but Medicare typically will cover 80% of ALL in emergency room/Hospital charges.
paoli2   |     |   Comment #30
#28:  I was just checking my Medicare booklet and it just dawned on me.  Does your friend have Part A (for hospital care) and Part B?  If she doesn't for whatever reason have Part A, that would be the only reason I would think Medicare would not have paid for the hospital part.  If one is going to use Medicare instead of an Advantage Plan, I think it is very important to make sure you have both Part A and B.
paoli2   |     |   Comment #29
Usually if you go to ER and are admitted, you are not supposed to pay for the ER charge.  It must have been a very serious medical problem to run up that much money in one week even for being hospitalized. I cannot understand how Medicare only covered the ER visit.  Your friend needs to read the rules for what it covers in the booklet or call Medicare.  There seems to be a big mistake here.  I would think your friend owed the Medicare copay/deductible for the medicare stay for so many days and then Medicare should have taken over.  I have Medicare Advantage because it costs less for hospital stays but even with that Medicare still has to pay it's part.  A call to Medicare would solve this problem, imo.
Anonymous   |     |   Comment #31
Not having both Parts A and B medicare qualifies one as an idiot.
paoli2   |     |   Comment #32
#31  This is no time to be calling names when you don't know all the facts.  Medicare is not understood by many people.  If the person had Medicare deductions taken from her paychecks, she would have Part A for Free.  It's Part B that we usually pay for  through our social security deductions.  What has also to be taken into understanding here is whether or not she was in a hospital that accepts Medicare Assignment.  Maybe she was so sick she went quickly to the closest hospital and had no one with her who thought about checking these important facts when it comes to using Medicare.  No matter what health insurance we use, Medicare etc. we need to take the time to study the Provider Directory to know which hospitals and doctors we can use with our specific insurance.  I have an Advantage Plan and I assure you, I don't make a medical move without checking that directory. 

The best thing for this lady to do, imo, is to find out if that hospital accepts Medicare Assignment and if it does, to find out why Medicare basically denied those charges.  Being ill and making mistakes at times like this does not make one an "idiot".   There are reasons for this and I do hope she gets them resolved without having to pay those tremendous charges.  Someone at that hospital may have been remiss for not explaining what her copays and deductions would be or that for whatever reason Medicare would not be paying their 80%.
Anonymous   |     |   Comment #33
After reading #32 comments on medicare, I would recommend that you read and learn when he or she has to say.  I think you might learn something that might be of value to you in the future.
Shorebreak   |     |   Comment #34
Make sure any physician that is involved accepts Medicare. Some emergency room physicians don't and my Mother found out the hard way. I had to go through a tough negotiating session with the physician in question to accept what Medicare would pay him plus a tad extra. I'd rather have to negotiate with a high pressure car sales person than go through that again.  I also wrote a complaint letter to the hospital administrator inquiring why they even allowed this to occur. A patient often is not in any position to question an E.R. physician if they accept Medicare or not.
paoli2   |     |   Comment #35
Shorebreak:  I have an on-going battle about this problem when one has to go to a hospital.  The hospital may be in network but they have all these "contract" doctors who are not and they usually don't accept all insurances and we are supposed to be responsible for any and all bills from them.  There are ways around this which I found out by accident when my DP some years ago went into a coma and had to be rushed to the hospital.  They said they accepted her insurance and we were in such a state of panic we were not able to double check to make sure.   Well when she was discharged, I got thousands of dollars of bills from all these doctors who they said treated her.  I did some research and found a very important fact.  "IF" a person enters the hospital and is unconscious and cannot tell them she refuses treatment from any doctor not on her insurance, they have to provide her with services and she is NOT responsible for the charges."   I told them to check their records, that my DP was in a coma and since she was an adult, "we" were not responsible concerning her charges.  I sent the bill back to them and they agreed I was correct.  Whew!  It pays to know our rights when it comes to hospitalizations! 

I was glad to hear you wrote your complaint to the hospital administrator.  More needs to be done so people don't get hit with thousands of dollars of bills their insurance won't pay.  Everyone isn't unconscious when they go in a hospital.  Hospitals need to take more responsibility in advising patients or other adults with them what charges they may be facing.  I have personally called the hospital when I know one of us is going to be admitted and insisted I get the name of everyone treating us so I can check ahead of time if they are not on our insurance plan.  If the hospital is on the plans the physicians and other treaters should have to sign a contract agreeing to accept these plans also.  It's that simple!
Anonymous   |     |   Comment #36
Also check your insurance policy.  My policy indicates that it provides coverage for an out of network doctor if it is an emergency. 
paoli2   |     |   Comment #37
#36  You can do one better than that.  This is why I only buy PPO plans even for my Medicare Advantage Plans.  With a PPO plan, you may have to pay a bit more for your copays etc.  but if you use a doctor out of network, they have to pay him the contracted payment for out of network doctors. With a PPO plan it just doesn't cover them for emergencies.  Out of Network doctors and facilities are a part of the plan.  This way you can know all your docs get a payment and you are not stuck for the entire bill. Like I wrote, they may try to stick it to us but if we do our research, we can find ways to protect ourselves with medical bills.  One important note: even with a PPO plan, one should always try to use In Network physicians and facilities to get the cheapest copays etc. 
Jim Davis
Jim Davis   |     |   Comment #38
 Sorry, but the medical establishment is being run like a criminal enterprise.  The charges for procedures are obscene.  What we really need is someone to go after them under the RICO act.


 Then we can send Bernake a bill for about 10 trillion in lost interest.
Anonymous   |     |   Comment #39
i cannot wait for jan to see bernanke the senior hater leave office
paoli2   |     |   Comment #40
#39  As much as I would like to blame all our woes on Bernanke, I don't think things are going to get better for savers no matter who takes over the helm.  What has been allowed to be done may have brought consequences to our economy and savers for many years to come no matter "who" takes over for Bernanke.   How I wish it were not so.
Anonymous   |     |   Comment #41
  #40,  I agree with your post, but we must remember it was Bernanke who created these low interest rates.  He is responsible for the losses we have incured over the last 5 years.  Retirees and savers are being discriminated against all in the name of "good for the economy".
Anonymous   |     |   Comment #42
Bernanke may have continued the downward spiral of interests rates for depositors, but it was Greenspan who started this whole mess.  He is just as much to blame.
Edna   |     |   Comment #43
golden years my ****!