In June, American credit-card debt reached an all-time high of $1.04 trillion. Forty-one percent of Americans carry such debt, according to the ValuePenguin financial-research group, meaning that they can’t meet their basic expenses without borrowing, regularly, at an average interest rate of 17 percent. The upper-middle-class and poor alike carry such debt, though the poorer you are, the more you’re likely to owe, as a percentage of income. But average income isn’t the only way to tally credit-card debt. Age matters, too, and the rising age of credit-card debtors should concern anyone worried about entitlement spending, America’s potential public-debt crisis-in-waiting.

Two decades ago, the mythical credit-card borrower was a heedless college student throwing money away on spring break; now, it’s just as often grandma buying groceries. A new report, “Graying of U.S. Bankruptcy,” is grim. “Older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher,” note Deborah Thorne, Pamela Foohey, Robert M. Lawless, and Katherine Porter, all professors of law or sociology. According to data culled from the Consumer Bankruptcy Project and from household surveys, Americans age 65 and older are filing for bankruptcy at rates two and three times higher than in 1991, even as young people file less frequently. “The bankruptcy trend . . . is so robust that the broader trend of an aging U.S. population can explain only a small portion of what is happening,” the authors note.

Today, one in seven bankrupt households involves someone 65 or over, nearly a five-fold increase in 25 years. Among the oldest Americans—75 and older—“there has been a near ten-fold increase since 1991,” from 0.3 percent to 3.3 percent of filers. Out of 800,000 annual household bankruptcy filings, 97,600, or 12.2 percent, come from older householders. The reason for more bankruptcies is hardly shocking: too many people are not ready for retirement. It’s true that, on average, people may overestimate their need for retirement income. As Andrew Biggs, an expert on the topic at the American Enterprise Institute, observes, “78 percent of current retirees tell Gallup they have sufficient money to live comfortably,” and retirement income is expected to rise in future years, from a median of $37,887 in 2015 to a median of $42,165 by 2035. Very few retirees—6.7 percent—live in poverty.

Still, averages aren’t everything, and of the 51 percent of people 60 and older who think their retirement savings are inadequate, according to a recent Federal Reserve survey, many of them are right. Many older people either voluntarily retire or lose their jobs without having saved enough to maintain their living standards. These problems are exacerbated by sudden shocks—big medical bills not covered by Medicare, for example. A younger person who loses a job has a good chance of getting another; an older person often cannot. “Being 67 and having back problems, not many people will hire you,” said one Consumer Bankruptcy Project participant.

Older bankruptcy filers are, generally speaking, not people who spent their working lives in poverty or profligacy. Filers don’t take bankruptcy lightly: 66 percent struggled for at least two years to manage their debt before giving up. Consistent with Biggs’s data, they are not even living in poverty in retirement. Two-thirds of them own their own homes, far greater than the 41 percent of younger bankruptcy filers. Older bankruptcy filers report about $30,600 in annual income, compared with $38,100 for their younger counterparts, consistent, again, with Biggs’s data on retirees’ relative income stability. The official poverty threshold for a family of four is $24,900. Most older families are smaller, with more modest needs, than families with children; they don’t need money to commute to work, pay for daycare, buy fresh clothing every year, or frequently replace their home-computer technology or cars.

No, the bankrupt elderly are people accustomed to maintaining at least a modest middle-income lifestyle—and whether hit with a shock or gradually falling behind, they are unable or unwilling to cut their expenses to meet the new realities. Nor do the bankrupt elderly bear the hallmarks of people who lived lives of chronic financial irresponsibility during their younger years. Paradoxically, bankruptcy itself is a sign of responsible long-term planning: it costs money, with the average personal bankruptcy requiring $1,300, and requires gathering paperwork, working with an attorney, and planning for the future, all indicators of competence. A less responsible person would simply ignore his creditors, particularly since credit-card and other unsecured debts aren’t transferred to heirs upon the death of a borrower.

Rather, what’s driving elderly bankruptcy is the use of debt as a replacement for income. Older bankruptcy filers owe $101,600, including $32,700 of unsecured debt (credit cards, medical bills, and the like). Credit-card debt among the elderly, in particular, is a new phenomenon. A separate study this year, by the Employee Benefit Research Institute, found that 42 percent of families age 65 to74 have outstanding credit-card debt, up sharply from 29 percent in 1998. Among people 75 and older, the figure is 26 percent, up from 11 percent in 1998. The average credit-card debtor between the ages of 65 and 69 owes $6,876, according to ValuePenguin—substantially more than an adult below the age of 35, who owes $5,808.

From the perspective of financial prudence, this gets it exactly backwards. A member of Generation Z (the cohort following the millennials) has decades to pay off her debt. It may be understandable that, in the course of getting started as an adult, she has to borrow money for a period of time before her income catches up to these starting-out-in-life costs. For a much older person, those big purchases are largely in the past, and the chances of ever catching up with such borrowing are slim, actuarially speaking.

Of course, the vast majority of elderly people are not in bankruptcy; 97,600 each year is still a small number. Yet the very existence of such debt among people over 65 is a sign of stress. Indeed, the plight of older America collides directly with the challenge of ballooning entitlement spending. With spending on Social Security and Medicare set to rise from 8 percent of GDP this year to 10 percent by 2028, exacerbating multi-trillion-dollar budget deficits, almost every mainstream proposal to pare the federal budget involves cuts to these programs. But sensible-sounding solutions—such as raising the Medicare-eligibility age from 65 to 67 or accelerating existing increases in Social Security’s full retirement age from a soon-to-be 67 to 70—would hit many elderly people hard, and not just the financially stressed.

As Biggs notes, the fact that the average household spends just $7,300 cumulatively on long-term care during retirement—thus likely keeping bankruptcy rates down—is largely due to Medicare and Medicaid. These costs aren’t a matter of concern to retirees themselves, he says, but rather to “states and federal governments, which foot most of the bill.” Shifting more of that bill toward households would cause more strain. As for Social Security, of the nearly 3 million people who started to receive benefits in 2017, nearly 1.6 million were under age 66, though such workers face a significant penalty for taking this “early retirement.” People who opt to incur this penalty aren’t irrational; they simply need the money.

As America grapples with its public-sector debt burden, driven in part by spending on retirees, it should heed a sign from the private-sector debt market: too many middle-class retiree families already have little room for financial or fiscal change. The longer the country waits to act on solutions—including on cutting health-care delivery costs—the sharper a future shock could prove to be.

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