‘Too Little Too Late’: Bankruptcy Booms Among Older Americans

[otjm]

Blaming Bush for what was created on President Clinton’s watch would be hilarious if it wasn’t sucha sad showing of howwe all - Bush included - ended up when the market crashed. Clinton led and Congress followed what they felt was a great idea. They lowered the means testing for mortgages, with the hope that it would increase owner housing among the minorities.

As the saying goes, no good deed will go unpunished. What happened is that more and more people entered the housing market, which in turn drove that market. I was in real estate at the time, and we called it the “mirror test”; if you could make a mark on the mirror, you could get a mortgage. Driven in part by the banking and mortgage industry, Wall Street got into the act through bundled mortgages (nothing new, except the risk factor was being ignored) and as people got themselves over extended, the defaults on mortgages started to mount up (there is always some default occurring) and the real estate bubble burst, thereby taking down the market.

then we had the “too big to fail” - an absolute lie. It was treated as some sort of doomsday mantra. Failure of a banking institution does not mean it all disappears; it simply means that through the bankruptcy courts, it gets sorted out, parts are spun off or closed, and the remainder gets back to functioning. Instead, we bailed out the failing institutions so that they did not have to come to terms with what was working and what wasn’t. And that was in the most part the large banking industry (not your local bank or credit union) and Wall Street.

And before we try to lay the blame at the feet of the Republicans, let’s keep in mind there are plenty of Democrats who benefited by the same machinations.

 

[Peeps]

Too bad you didn’t teach in Illinois.

There is a detestable practice in the public school system in our state (Illinois) where teachers receive huge raises during their last year of teaching, because their pension is based on their last-year salary.

The teachers in our state have a very strong union. There are very few teachers who even think about, let alone try, to reign their union in. They have no choice but to go along with it.

We personally know teachers who taught in TWO states who are collecting not only Illinois pensions, but a pension from their other state. They are doing really well, and were able to retire at age 55 with plenty of cash. One of them raises pedigree dogs and travels around doing the dog shows. Wow.

My husband and I are hoping to retire from our high-stress non-teaching jobs at age 70, if our health holds out. Hopefully we won’t become incompetent in our jobs and get fired earlier, or even let go as our companies downsize and dumps the old folks with higher paychecks. That would be devastating and probably leave us with a low but hopefully adequate retirement income. I hope my fingers hold out so I can continue to play in churches for a little extra money.

My father-in-law was a teacher in Illinois.

 

[Peeps]

I do agree that the German model for school sounds good, but I don’t think it would work in the U.S. because of the diversity of our population.

I am a white person, and I happen to agree with black people that they are at a disadvantage economically and have a harder time getting a good education and a good job that allows them to be financially secure.

I realize that some black activists have milked this, but when you think about it, there really is a lot of truth to the claims. Until the 1960s, black people were legally discriminated against when it came to housing, jobs, and education. My father (white) was one of the first people to rent a “good side of town” apartment to a black family, and he received nasty phone calls and even death threats–and this was in the 1960s well after the Civil Rights Act passed!

So the race is trying to catch up–but many of the grandparents and even parents never received a high school diploma, and there is a high rate of illiteracy among these older black people, too.

It’s not just black people. Have any of you read Hillbilly Elegy? This book is marvelous and very true–my mother was one of those “hillbillies” who migrated North to find work, and the personality traits that the author describes fit her to a T! She was very intelligent, but her childhood was spent in a shanty with 10 brothers and sisters and an abusive, drunken father. All the kids picked cotton, and my mother described a woefully-inadequate diet. Even when she was older, she would occasionally have a “shortenin’ sandwich.” And she knew how to make a really yummy corn pudding out of field corn (the kind used to make animal feed)!

What I’m saying is that if entering college depended on passing a test–many black families and many poor-white families and families from other races might have a really hard time because of their deprived background. In fact, I think that any family who is “poor” would have a hard time.

I realize that there are many young people who pull themselves out of their difficult family backgrounds and poverty and achieve great things. But there are many more who just never make it and spend their lives drifting from low-pay job to lower-pay job, and collect a number of government aid checks and benefits, and who also rely heavily on churches and other charitable organizations for things like Christmas gifts for their kids.

There’s just too much diversity in the U.S. for the German approach to work.

 

[Augustinian]

They lowered the means testing for mortgages, with the hope that it would increase owner housing among the minorities.

I know when I applied for a mortgage in 2005, I was earning maybe $45 or $50k. The bank prequalified me for a $200,000 note. Absolutely insane

 

[ProdglArchitect]

There’s just too much diversity in the U.S. for the German approach to work.

The whole point of that discussion was that the German approach, a focus on apprenticeship rather than college, would benefit everybody, especially those people who are economically disadvantaged. With an apprenticeship, their future wouldn’t depend on being able to pass a test or pay for college, but rather on their ability and willingness to work and learn a skill.

I know the German model has testing for colleges the higher colleges, for math and science, but most other jobs would be covered under apprenticeships, allowing anyone access to them regardless of economic standing.

Adopting an apprenticeship system in America, especially in impoverished areas, would do wonders to help offset the disadvantage of not being able to afford “higher education”.

 

[pdl40]

This is one of the worst idea that I have read here on CAF. If you read the article every single one of them are in their positions because they made poor decisions.

 

[ProdglArchitect]

Not all of them. Some of them, yes; and I believe relying on the government for any sort of financial safety-net is a bad decision, but not everyone in this situation has themselves to blame.

My father-in-law had a nice pension coming to him, but was forced to retire early when the company was going to do away with the pension program. He had saved up on his own, but the pension was a major part of his retirement plan. Lots of people got stuck like that. They had been relying on the long-standing pension plan to cover part of their retirement, but then found it removed before they were capable of retiring.

We can discuss the intelligence of relying on a company for your retirement, but they were doing so in good faith since most of those plans had been around for decades.

Some people made bad decisions, that is true, but we can’t just write them off because of it… though we also can’t ignore it when considering how much help to give…

 

[midori]

Driving the surge, the study suggests, is a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks.

Yes, we have a responsibility for our own well-being. A government safety net is nice. But I’d be naive to trust my entire support to either the government or my previous employers. Which is why DH and I have been working like gangbusters for the last 8 years, and will continue to work like gangbusters for the next 10 years, on our side biz, so that he can have a retirement. (Me, I’ll keep working the side biz!)

The transfer has come in the form of, among other things, longer waits for full Social Security benefits, the replacement of employer-provided pensions with 401(k) savings plans and more out-of-pocket spending on health care. Declining incomes, whether in retirement or leading up to it, compound the challenge.

When SS was created, the average life expectancy (61 years old) was pretty much set at the same age that you were allowed to start collecting (62). It wasn’t supposed to be used to support your lifestyle for the next 20 years-- you were either supposed to die before you started collecting, or you were supposed to die shortly after you began. (Today’s life expectancy is about 80.)

SS began in 1935. In the 1930’s, you could get a hospital stay for $4/day, all-inclusive. Or $75/week, all-inclusive. If you needed surgery, the operating room was $17.50 ($250) for a major operation, or $7.50 ($110) for a minor surgery. Or whatever. Yeah, $75 had about the same buying power as $1000 today. $4 had the same buying power as about $60 today. But the point is-- once insurance got involved, healthcare prices skyrocketed, compounded by having to recoup the costs of complicated technology.

Incomes have remained stagnant for the last 20 years, but the cost of living has continued to rise.

The thing that I find really interesting is that, in the 90’s, the rule of thumb was, “What are the baby boomers doing? That’s where the money is to be made.” And so in the 80’s and the 90’s, there was an explosion of things like golf courses, or RVs, or other entertainment/recreational things that were meant to appeal to people in their early retirement years, as the boomers started exiting the workforce. Now, it’s healthcare.

Just looking at the people I know from the Greatest Generation (1910-1924) and the Silent Generation (1925-1945), they seem to be doing generally well for themselves in retirement. But the Boomers (1946-1964) seem to be the first wave of where the traditional expectations aren’t showing themselves to be sustainable-- partly because they’re enjoying, on average, an extra 20 years of lifespan (and lifestyle) that their forebears hadn’t had to consider.

Suppose we pegged social security to start collecting at age 85, for everyone born after 2010. There would be riots! Probably not the 3rd-graders rioting, but other people happy to riot on their behalf.

 

[RCIAGraduate]

Yes, we have a responsibility for our own well-being. A government safety net is nice. But I’d be naive to trust my entire support to either the government or my previous employers. Which is why DH and I have been working like gangbusters for the last 8 years, and will continue to work like gangbusters for the next 10 years, on our side biz, so that he can have a retirement. (Me, I’ll keep working the side biz!)

Midori, do you think it’s possible for the majority of America to be able to come to a place where they can live off their financial portfolio or retirement savings (or other assets be it renting houses (like a certain poster here), a farm or dare I say it a small company) comfortable and leave something for family or even a cherished cause like favorite charity? For a lot of Americans, it seems like that dream is far out of reach, in many metropolitan areas living costs are through the roof, not to mention, many workers aren’t lucky to have stable job cycles, and now we have a student loan debt crisis at our hands. For a lot of Americans, thrift, hard work and discipline seem to be enough but is it feasible for most of us? The decline of the middle class has been appeared to be a concern.

 

[midori]

Historically, how long has the concept of “retirement” been a thing? The attitude of “I’ve worked my whole life; now I get to sit back and enjoy the fruits of my labors”? Yeah, maybe if you’re the Emperor of Heian Japan… otherwise, retirement isn’t really historically a sustainable thing. You show up to work until you’re physically incapable of doing so anymore, not until you reach an arbitrary age, or until your age + years worked fills out an equation in a certain way. You depend on immediate family and extended family— and the only vulnerable people were the ones without strong family ties-- but nowadays, our families are small and fractured and dispersed.

Historically, how long has the concept of “a pension” been a thing? The attitude of, “You’ve been a valuable employee; here’s a check to cover you in your declining years.”

Pensions started happening, say, around the 1880’s, 1890’s-- mostly in large cities, for things like fire/police/teachers. They were supported by taxes. By WWI, the private sector had seen this as a valuable tool in encouraging someone to come work for them-- hey, come work for me for 30-40 years, and you’ll get a guaranteed payment for the rest of your life! And people would stay with the same company for decades. And it’s not too much for the taxpayers or the employer to handle, if your former employees are dying around age 55, 58, 61, and retirement is pegged to age 65…

Ultimately, things like “pensions” and “retirement” are economic experiments that have only been around for about 100, 150 years… which sounds like a long time, but if you think of it in terms of an 80-or-90-year lifespan, it’s not that long. The current model is totally unsustainable as such, which is why people have been talking about either how broken or broke it is since the 1980’s. You have no idea what your future tax base is 50 years from now, so how can you rely upon this ever-growing population to keep a pay-as-you-go scheme running? In other situations, this design would be called a Ponzi scheme.

The Forbes article above praises nations with privatized social security, with Chile’s being the best, but looking in RealWorldVille, Chileans hate their own privatized social security– because they were promised 70% of their old income back in 1981, when it was created, but the real number is more like 38% of their income. The Forbes article above gushes over Indonesia’s privatized social security system, and says 1 in 6 households are millionaires, but it had to be seriously revamped in 2004 after the Asian Financial Crisis. (It was begun in 1960 as a government program; it was privatized in 2004. So we’ll see in another 10, 20 years if it’s ironed out all its problems.)

 

[midori]

But looking at things on a global basis, whether government-based or privatized, no one in that time frame (100-150 years) has figured out how to do social security in a solid, reliable way.

Yet in recent years a counter-revolution has set in. Governments have seized, “temporally seized” or threatened to seize private pension funds in France, Ireland, Hungary, Poland, Cyprus, Russia,Argentina and other countries. In many cases the pensions are individual accounts, set up as an effort to create a funded alternative to pay-as-you-go social security. In fact, a 2011 report by the Adam Smith Institute, published in the Christian Science Monitor, notes that at least 11 countries have rolled back or abandoned efforts to privatize their retirement systems:

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.

The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system.

 

[ProdglArchitect]

That’s because social security is, ultimately, unsustainable and impractical. It’s a forced “retirement” fund where you’ll only see about a third of what you put into it (if you’re lucky). People who aren’t working don’t contribute to it, but then are able to draw on it at a later date. It also excessively penalizes people for doing better, because it forces them to put a greater percentage of their paycheck into the system without modifying the output rate to compensate. As you put it, it really is just one gigantic ponzy scheme.

If everyone kept the money they were forced to put into Social Security, and instead invested it in a good retirement program, everyone would be way better off. The economy would do better, due to the influx of investments, and your money wouldn’t be in the hands of bureaucrats and lobbyists.

 

[Ridgerunner]

There’s a lot of luck involved, and there’s no way to provide good luck to everyone.

But sometimes lifestyle choices determine these things.

My wife’s sister and brother in law lived in a sizeable city. They bought a really nice house in a subdivision full of retired professional athletes and even a former astronaut. Really nice. They drove nice cars, and dressed well. They sent their kids to fashionable (for the area) schools.

My brother in law died recently and his widow found that those “bank papers” they signed from time to time were new loans. Their house wasn’t “under water” but it was close. She sold it, of course.

My wife and I bought a “fixer upper” from a bank and fixed it up ourselves. We only had two new cars, ever. We sent our kids to school where they and we could afford it. I borrowed money only to invest, never to consume. We can take care of ourselves, and will be able to do so when we can no longer work.

 

[midori]

We bought our house as a foreclosure. It was originally $x as a pre-foreclosure. Two years later, three visits to the courthouse steps, and one online auction, we contacted the auctioneers and said, “We’ve been watching this house. We’re willing to pay a third of $x.” And so we bought it. It also required significant repairs— but we hired what needed to be done by skilled individuals (electrical, plumbing, gas lines, A/C, etc), and did the unskilled things ourselves (tearing out the damaged carpet, replacing the light fixtures that had been torn out by druggies in search of brass, painting every square inch, etc).

In our town, the average household income was $26k/year when we moved here. (Household!) Now, the average household income is more like $31-$35k. Locally, we’re probably in the top percent for income. His secretaries run off to Las Vegas for boxing matches, and to Disney World and Orlando for two weeks, and for a Caribbean cruise-- all within a 12-month period. When we go somewhere, it’s usually to visit family. I don’t think we’ve ever taken the kids on a “real” getaway vacation… but we’re surrounded by people in this town who do, even on a $35-$60k income.

We try very hard to be economical, because we’re not thinking about what would be nice “now”, but we’re thinking 5 or 10 years out. So, yeah, we can spend $5k on a Disney World trip, or we can put that $5k to work now, so that we can do something fun with the proceeds later. I’m not saying that the people who were bankrupt in the article weren’t planning ahead— I have no doubt so many people are. But the people in my peer group are going to have a terrible time come retirement, because they have so much trouble living within their means as members of the workforce… how are they going to live comfortably when their entire lifestyle is reduced to what can be supported by a $900/month SS check?

 

[JanetF]

My wife and I bought a “fixer upper” from a bank and fixed it up ourselves. We only had two new cars, ever. We sent our kids to school where they and we could afford it. I borrowed money only to invest, never to consume. We can take care of ourselves, and will be able to do so when we can no longer work.

Good long-term planning is a significant factor in one’s retirement being nice and easy or not. My mortgage will be paid off long before retirement, I’ve invested in a retirement annuity, knowing the social security should not be counted on an the entirety of one’s retirement income. My goal is to not be a burden on my child in my old age. Right now, it’s looking good. I have about 8 years until retirement (my goal is 62), but I’ll still be active, possible take a part-time fun job, again not relying on SS

 

[Ridgerunner]

Take no offense, Janet, but why are you going to retire at all?

Think about it. You have spent a lifetime learning how to do a few things well. So at 62 you’re going to stop doing whatever that is in order to do something you don’t know how to do well? That’s usually what retirement is.

I remember some years back an insurance salesman was bugging me for an appointment. Finally, to get rid of him, I set an appointment at 5:30 in my office. His first product was life insurance. I responded that I felt our assets could take care of my wife, my kids are grown, and I didn’t see any need for it.

He accepted that and started talking about disability insurance. I asked him how disabled I would have to be before the company would admit I’m disabled. He saw the point.

He then asked if I have a retirement plan. I told him I don’t plan to retire. WHAT? he exclaimed. “Do you want your family to find you someday slumped over your desk, dead?”

“Well” I said, “It’s no worse than them finding me with my face in my oatmeal bowl in the nursing home.”

He picked up his brochures in a huff and left.

 

[stinkcat_14]

Think about it. You have spent a lifetime learning how to do a few things well. So at 62 you’re going to stop doing whatever that is in order to do something you don’t know how to do well? That’s usually what retirement is.

I think one of the problem is that people tend to overestimate their abilities. That is not as much of an issue when you have your own business, because if you are not as good, clients can dump you for someone younger. On the other hand, if you work for someone, employers often cut older workers a bit too much slack. In higher education, it is rare to see a professor in his 70s who is as effective as one in his 30s. That is just the nature of the game. Personally, I think we should have mandatory retirement in some professions, teaching being one of them.

 

[JanetF]

Take no offense, Janet, but why are you going to retire at all?

Because I don’t really like my job/career and I want to pursue my hobbies. No traffic hassles, no people hassles.

I’m an executive assistant, it’s not the most fulfilling job in the world. My ideal retirement would be working part time in a quilt shop to subsidize my quilt hobby.

 

[stinkcat_14]

I’m an executive assistant, it’s not the most fulfilling job in the world. My ideal retirement would be working part time in a quilt shop to subsidize my quilt hobby.

For some of us, we get to a point where we really don’t need that much extra money, so then it really makes no sense to work at a job that is in any way disagreeable. I don’t see myself working full time past 70 because it would make no financial sense to my lifestyle in doing so.

 

[Augustinian]

No traffic hassles,

The traffic hassles, particularly for those of us who live in super-sized cities, are worse than working.