Social Security Checks At Risk As Seniors Take On Student Loans

Wanda Russell had just turned 50 when her bosses told her she would have to go back to college and get a bachelor of nursing degree to keep her job.

Russell gulped. Back to college? At this stage of my career?

Russell was an assistant nurse manager for operating rooms at Orlando Regional Medical Center in Florida. She had worked there for 16 years and already had a diploma degree in nursing from Grady Memorial Hospital in Atlanta, where she worked the previous 10 years.

“I never thought I’d have to go back to college again,” she said. “I thought education was built on clinical experience and work, but they told me if I wanted to keep my job, I had to get a bachelor of nursing degree.

“I didn’t have the money to pay for it, but what was I going to do?”

Take out a student loan, $17,000 worth.

That was the price it took to upgrade her degree and join a growing number of older people who need help from student loans to pay for education required by their jobs.

“Some people may think of student loan debt as a young person’s problem, but as it turns out, that is increasingly not the case,” Florida Senator Bill Nelson said in an email response to questions from “Student loan debt among seniors is fairly small, but it’s growing quickly, much faster than other age groups.”

The Government Accounting Office (GAO) released a report Sept. 10 that said student loan debt among adults 50-64 soared from $48.4 billion in 2005 to $157.5 billion in 2013. Student loan debt for those 65-and-older leapt from $2.8 billion in 2005 to $18.2 billion in 2013.

The GAO report said that 80 percent of the student loan money taken out by older borrowers was for their own education, not their children or dependents. It was used mostly to pay for graduate degrees or continuing education classes ordered by employers.

Default Rate High For Retirees

Paying back late-in-life student loans is a serious matter for those just entering retirement or fast approaching it. At best, it robs them of money that might normally go into a retirement account. At worst, if they default on the loans, the IRS will garnish their monthly social security to pay off the balance.

“We should be doing more to educate people about the true impact and cost of the debt they are taking on,” Nelson said. “We’re seeing more seniors who count on Social Security income having their portion of their checks garnished because they can’t afford to pay back student loan debt. I’ve sponsored legislation to help seniors keep more of their Social Security income so they do not fall into poverty when their checks are garnished.”

The GAO report also said that seniors are more likely than young people to default on the student loans. About 27 percent of seniors default on loans as compared to 12 percent of people between the ages of 25 and 49. The GAO report says that more than the student loans held by people 74 and older are in default.

The government can take all but $750 of the monthly social security checks, which puts some of those people below the poverty level.

For people like Russell, that information is frightening.

$17,000 Loan Just To Keep A Job

When she took out her student loan, Russell had just gone through a divorce that left her with a plate full of bills that included a mortgage payment. She had one daughter finishing college and another about to start.

Going back to college – and paying off student loans to do so – was not in the budget.

She used the $17,000 in loans to pay for classes at the University of Phoenix, a for-profit college. She tried to enroll at the state school in town, the University of Central Florida, which would have cost about one-third of that, but UCF would not accept her transfer credits. UCF told her she would have to take basic education courses, essentially starting from scratch.

“I definitely wasn’t going to do that,” she said.

So she enrolled at the University of Phoenix and spent 18 months taking night classes and doing homework on weekends to earn the Bachelor of Nursing degree her employer insisted she needed. When she finished, her job title didn’t change and neither did her salary. She basically took out a $17,000 loan just to keep her job.

“That’s $17,000 that could have gone into a retirement account or helped me pay off the mortgage,” she said. “Instead, I’m paying off student loans and probably going to have to work past 65 to take care of all my bills.

“I’m surviving and I saved my job. That’s about all I can say.”

Obama Wants to Cut Social Security By Changing Benefit Calculation

Last week, President Obama submitted to Congress his version of a federal budget for the 2014 fiscal year. And soon, like the half-dozen other budget proposals that have been introduced by, and then summarily dismissed in, both the House and Senate, this latest budgetary scheme tossed into the maw of Washington’s partisan politics is destined to go nowhere.

DOA – just like almost every other piece of potential legislation that gets floated around the Capitol, lately. Because these days in D.C., nobody likes anybody else’s ideas about anything. And the Obama budget is roundly disliked by almost everyone.

Republicans don’t like it because it proposes new spending for road construction, more money for pre-K education and advanced manufacturing research, a higher minimum wage, and tax hikes for the wealthy, among other items that are anathema to the Grand Old Party. Mostly, though, they don’t like the Obama budget because, well, it comes from Obama.

But many Democrats are also angry that their president deigned to put Social Security savings into the plan in a way that will tend to lower benefits for current and future recipients — despite the administration’s promises never to do such an unpopular and unnecessary thing.

The questionable change that riles many of the president’s own party mates would replace the government’s traditional consumer price index (CPI) that is used to make cost-of-living adjustments (COLAs) in programs such as Social Security, veterans’ benefits, and food stamps, with what is known as the “chained CPI.”

What is the Chained CPI?

Basically, the CPI, which is calculated by the Bureau of Labor Statistics (BLS), is a formula that looks at how the prices of 200 different categories of things we buy, increase over time due to inflation. When prices go up, COLAs kick in. The chained CPI is a little different. It measures not only the changing price of goods, but also factors in the recognition that certain purchasing decisions also change when prices do.

For example, if the price of apples goes up, people may not necessarily spend more money on apples – they might buy peaches instead if they are cheaper, thus “substituting” one similar item for another and, in this case, countering the apples’ rise in price. So the chained CPI usually registers about 0.3 percentage points lower than the traditional CPI and, according to the BLS, is a closer approximation of the actual increase in the population’s overall cost of living.

While a 0.3 percentage decrease doesn’t sound like much — $3 less on every $1,000 — when compounded over time, it can grow into hundreds or even thousands of dollars of difference in future Social Security payouts. And since nearly two-thirds of recipients rely on Social Security for at least 50 percent of their income, and over one-third of seniors rely on Social Security for 90 percent of theirs, the hit can be substantial.

Here’s some quick math: This year the COLA was 1.7 percent. Thus, last year’s monthly Social Security check of $1,250 increased to $1,271.25. If the chained CPI had been used instead to calculate the increase, the percentage would have been 1.4 percent and the amount would have been $1,267.50 – $3.75 less per month and $45 less for the year.

By compounding the decrease over time, the cut would be about 3 percent after 10 years, 6 percent after 20 years, and close to 9 percent after 30 years – a reduction of $1,400 annually for a 95 year-old retiree in 2043. According to the Congressional Budget Office, computing Social Security COLAs with the chained CPI would save the system $112 billion over its first decade.

Detractors of the president’s plan argue that that the chained CPI should not be implemented for Social Security because it does not adequately reflect the spending patterns of seniors. While a younger person may decide to buy cheaper peaches if the price of apples goes up, seniors spend a disproportionate amount of their incomes on housing and health care, two categories that defy the possibility of “substitution,” the concept on which the chained CPI depends. In fact, they maintain that even the traditional CPI underestimates the effects of inflation on the elderly and is at least 0.2 percentage points too low, as it is.

Reducing Social Security Benefits Will Not Reduce the Deficit

Why the mad dash to change the way COLAs are calculated? Well, it all has to do with Washington’s newfound fetish about “cutting spending” and “reducing the deficit” – now the preeminent policy goals of our nation’s elected leaders and the political class’s most fervent pursuit — despite evidence to the contrary that suggests that the deficit is already coming down and that cutting spending in a time of high unemployment actually retards growth and increases societal suffering.

And yet, it seems that in order to placate the deficit hawks in Congress, the president has offered up the resources of one of society’s most vulnerable cohorts as his ante into the next round of negotiations that will undoubtedly take place after his budget proposal gets shredded by both the right and the left and lies limp and lifeless in a pile with all the rest of its scorned predecessors. DOA all over again.

But the most truly bizarre aspect of this burning desire to cut Social Security benefits in Washington’s current “reduce spending and cut the deficit” jihad, is the fact that Social Security is not even a part of the country’s general budgetary package in the first place. It is a separate program, financed not by income, excise, estate or any of the different taxes that fund the federal government, but by the stand-apart FICA, or payroll, taxes we all contribute with every paycheck. In other words, the revenue stream that funds its expenditures, and those expenditures, themselves — which are the monthly paychecks to country’s retirees — sort of run parallel to any general budget resolution that would eventually become law.

That means that even if Social Security payouts do diminish, which would save the Social Security system, itself, money, it has nothing to do with reducing the deficit — that long-term negative number that the government has created over the years by spending more from its general budget than it has taken in.

So not only does using the chained CPI make no sense on a personal level — unfairly impacting the country’s seniors who have already witnessed a severe waning of their wealth over the last several years — it makes no sense on a budgetary one either.

But these days, Washington is becoming more and more like a through-the-looking-glass universe; a place where taking money away from our neediest citizens is viewed as the only practical way to save the republic, and advocating for wrongheaded policies — at least in the warped mirrors of the funhouse — makes one look caring and intelligent.

So, maybe it’s just as well that nobody likes anybody else’s ideas in our nation’s capital any more. After all, so many of them are so remarkably bad.

American Workers Draining Their 401(k)s Should Rethink Retirement Accounts

More than 30 years ago, Congress created 401(k) plans as a way for employers to encourage their workforce to save for retirement.

Since then, 401(k) and other employer-funded, defined contribution (DC) programs, as well as individual retirement accounts (IRAs), largely replaced traditional pensions as the primary ways workers supplement Social Security checks upon retiring.

By 1980, in fact, 80 percent of private-sector workers were covered by traditional pension plans that paid a fixed benefit at retirement, based on salary and length of service.

Now only 20 percent are covered.

Conversely, by 2010 about one-third of American households included at least one worker participating in a 401(k)-type program. Employees contribute $175 million each year to these DC accounts, and employers give another $118 billion. The total assets in these plans are about $4.5 trillion.

Here’s the thing. Retirement accounts are not supposed to be short-term investments or used as rainy day funds. Yet workers caught between rising costs and non-rising wages as well as those who lost homes and jobs because of the Great Recession appear to be doing just that.

Several recent studies suggest that a increasing number of Americans are “breaching” their 401(k) accounts at an alarming rate: more than 25 percent of all DC participants are pulling out more than $70 billion a year.

The overwhelming majority of these people are using the withdrawn money to pay bills and for general expenses. The greatest number of “breachers,” not surprisingly, come from households earning less than $50,000 a year and from workers in their 40s who are wrestling with mortgages that are too expensive, credit card debt and children entering college.

How to Take Money from a 401(k)

In general, there are three ways in which an individual can take money from a 401(k):

  • Loans
  • Withdrawals
  • Cash-outs

Depending on the plan, employers can give participants the ability to borrow from a 401(k) up to 50 percent of their vested balance or $50,000, whichever amount is lower.

Borrowers generally must repay the loans, with interest, within five years. Most plans require that the loan be paid back within 60 days if a worker leaves the company. Today, about 13.7 percent of participants have an outstanding loan against their 401(k).

When money is withdrawn from a 401(k) account by an owner younger than 59 ½, a 10-percent income tax penalty is placed on the amount taken out. (The owner also must pay a capital gains tax on any earned income from the account’s investments.)

Studies show that nearly 7 percent of those with a 401(k) take a withdrawal every year under “hardship” conditions — for things like unexpected medical costs, house payments to prevent foreclosure or educational expenses. (Certain hardship withdrawals, like those for certain medical bills, or when a reservist is called to active duty, may have the 10-percent penalty waived.)

Plan owners also can cash out their accounts in part or entirely when they leave their jobs. In fact, cash-outs make up the largest share of 401(k) breaches.

In 2010, 42 percent of workers cashed out their plans instead of rolling them into other tax-sheltered retirement plans when they changed jobs. In fact, 73 percent of cash-outs are used to pay bills and take care of everyday living expenses, with only a small percentage of them being used for non-essential or otherwise “frivolous” reasons like an expensive vacation or discretionary consumer purchase.

Some Workers Not Well Served by Current Plans

What to make of these trends?

First, they demonstrate that many people need to tap into their retirement savings more than we have realized — and these plans are being tapped long before they were intended to be.

Second, there is a strong association between poor household financial health and 401(k) breaching, with lower income people borrowing and withdrawing funds in greater numbers and in greater amounts than those who are better off.

Finally, they imply that for many people who are struggling in a depressed national economy, their retirement accounts are not serving their needs.

For example, their investments are most likely in long-term equities and bonds when they could be in short-term money market accounts that are more easily accessed and don’t incur penalties for withdrawal. These short-term accounts also aren’t burdened with mutual fund load fees, transaction fees, and investment management fees that drive up the costs of saving.

In short, in addition to the increasing disparity in America between the financial Haves and Have Nots, there is a growing disconnect between the future financial needs of workers (subsidized by their employers) and the current financial needs of a large segment of the U.S. workforce.

It may be time for employers, plan sponsors and workers to reconsider how best to utilize their retirement savings. Some employees might be better off storing their own money, as well as their employer contributions, in cash accounts so that they can use the money when the need it.

It would be nice if they could make it to retirement without having to declare bankruptcy before getting there.

Baby Boomers Better Prepared for Retirement than Previous Generations

A new report says that most baby boomers have successfully stuffed enough pennies into the piggy banks – and dollars into the 401(k) plans – to retain their status as the most pampered generation in America, even in retirement.

Americans have put away $18.5 trillion for retirement in 401(k) contribution plans and defined benefit pension programs, according to the report published by the Investment Company Institute.

‘Pyramid’ of Retirement Funding

The ICI study said that although the sputtering economy has slowed recent gains, the average household still has $153,100 in retirement savings. That is up only 2 percent since 2005, but is 50 percent more than it was in 1995 ($105,400) and 173 percent more than in 1985 ($56,100).

According to the ICI press release: “Most households maintain their standard of living when they retire. In addition, analysis shows that, on average, more recent retirees have higher levels of resources to draw on in retirement than previous generations.”

The ICI study said that people are now using a five-tiered system “pyramid” to build their retirement nest. Homeownership, pensions, IRAs, and other assets supplement their Social Security benefits and carry them through retirement.

Social Security is still the foundation of the pyramid plan, but it has become an increasingly smaller portion for many retirees.

Those with the least amount of total retirement assets, less than $93,500, are counting on Social Security to provide 82 percent of the money they’ll have for retirement. Social Security accounts for 58 percent for those with $294,000 in retirement assets; 41 percent for those with up to $543,000; 28 percent for those with $994,000; and 14 percent for those with $2 million or more in retirement assets.

“Contrary to what we too often hear, the U.S. retirement system has successfully provided generations of Americans the resources they need in retirement,” ICI President and CEO Paul Schott Stevens said in the press release.

As Schott’s statement suggested, not all boomers believe life won’t change much when they retire. Some are still struggling to reach their goal of retiring by age 65 and for most of them, it’s not saving, it’s spending that is holding them back.

Spending Habits Hold Boomers Back

The National Center for Policy Analysis did a study comparing spending habits for workers 45-54 and 55-64 with spending habits for the same age groups 20 years ago, and results were not that encouraging.

Mortgage debt is the largest expense, as some boomers bought bigger and more expensive houses than they could afford. When the real estate market crashed, so did their finances.

Student loan debt, dating back to their days in college in the ’60s ‘‘70s, is another anchor tying boomers down. New York’s Federal Reserve Bank did an analysis recently that showed one-third of the nation’s $1 trillion student loan debt belongs to people 40 or older.

Other expenses weighing down boomers include health care costs and paying living expenses for adult children. Boomers are still picking up expenses like medical bills, home and car loans, and weekly spending money.

Still, overall the news is very good for the newly retired and soon-to-be-retired baby boomers.

Poverty among people age 65 and older dropped from 30 percent in 1966 to 9 percent in 2011, leaving a smaller percentage of seniors living in poverty today than the percentage of people 18-64 (14 percent) and 18 and younger (22 percent).

No Cash for a Will? Leave a Fond Memory Instead

As a growing number of retirees come to grips with their dwindling cash flows to leave as inheritance, many are turning to other ways to preserve their memory for future generations.

Gone are the days that an inheritance means a big windfall for the remaining family members. The shoddy economy has taken a big chunk from many retirement funds. At the same time, those retirees who did fare well through this recession are choosing to spend it now instead of saving it for their loved ones.

Retirees are now using other ways – including life histories, ethical wills and personalized video recordings – to leave a legacy. Some financial planners are encouraging this outpouring of values and wisdom, whether it accompanies a financial payout or not.

“There’s an element regarding money, but it is really more about affirming your life as a legacy,” explained one certified financial planner.

Alternative Legacies

Around the country, a cottage industry has emerged from the need for alternative estate planning. Each style of remembrance is aimed at preserving memories:

  • Bound memoirs: Ranging from a few pages to hundreds, many have turned to personal-history writers to convey a lifetime in the pages of a book. Through a series of one-on-one or phone interviews and some investigation, a personal historian will turn events, recollections and thoughts into a keepsake book. Typically costing up to $5,000, these books are meant to serve as a remembrance long after cash is gone. At the same time, retirees who can’t afford to pay a personal historian have hired writers or have even done the work themselves. A growing number of senior centers are hosting personal-history classes, and the advent of self-publishing has made the task simpler.
  • Ethical will: Dating back to Biblical times, ethical wills are a way to pass on emotional and spiritual information to loved ones. Through this growing trend, retirees write a document that reflects more than just the disbursement of cash and possessions. They share life lesson, joys and hopes for future generations. Similar to life books, the cost to put together an ethical is wide-ranging. A growing number of companies are emerging to help retirees put together ethical wills, but making one could be as simple as putting pen to paper.
  • Video diary: One of the most valued memories any person can leave for loved ones is a voice. As the years pass, many family members forget how a loved one sounded and yearn to hear the voice again. Through a video diary, retirees are able to visually and audibly convey feelings, gestures and vocal reminders. Again, costs vary, but the task can be accomplished easily without expensive equipment.

Even with this trend toward dwindling inheritance cash, some members of younger generations are still holding out hope. A recent survey of Generation Z members, kids aged 13 to 22, showed that many think they’ll still receive a large payout to fund their futures. Head Solutions Group, a market research company, found that nearly 40 percent of these individuals think they will be getting an inheritance and therefore don’t need to save for retirement. At the same time, only 16 percent of parents plant to leave them any money.

Retirement Now More Scary than Death

Senator Tom Harkin (D-Iowa), Chairman of the U.S. Senate Committee on Health, Education, Labor and Pensions, sees a crisis ahead.

According to Senator Harkin, the ticking time bomb that will explode, causing widespread societal damage, is the “retirement income deficit” – the difference between what people have saved for their retirement and what the experts say they should have been saving. The gap is estimated at $6.6 trillion.

For the past two years, Harkin’s committee has held hearings on the state of retirement security in America. The numbers are sobering:

  • Half of all Americans have less than $10,000 in retirement savings.
  • Only 1 in 5 has what is known as a “defined benefit” plan, which traditionally provided retirees with lifetime income based on their years of service and former salary.
  • In 2010, approximately 6 million Americans over 65 were living in or near poverty, a number that is expected to increase by a third in 2020.

‘Failure of 3-Legged Stool’

In a report released this summer, Harkin attributed the predicament to “the failure of the three-legged stool” – the combination of personal savings, defined benefit pension plans, and Social Security – that is supposed to create a solid basis for the retirement system. While Social Security is still expected to provide a rudimentary level of safety for at least the near future, it was never intended to be a retiree’s sole source of income.

And a strain on the system is imminent. When it was established in 1935, average life expectancy in America was 61.7 years. Today it is over 78.

Another leg of the stool that has been weakened considerably is the defined benefit pension. Over the past 30 years, defined benefit plans have largely been replaced by defined contribution plans, including Individual Retirement Accounts (IRAs), and employer sponsored 401(k)s, neither of which offer a guaranteed return. In addition, fewer than half of the nation’s private sector workers are enrolled in a 401(k), and most of them are insufficiently funded.

To make matters worse, the Great Recession obliterated a good portion of many IRAs and 401(k)s. Not only were a majority of the funds in those accounts tied to the stock market, over the past several years, millions of potential retirees have had to raid their accounts with pre-retirement withdrawals (called “leakages”) to stay afloat after a job loss or medical emergency.

Will Congress Act?

While Harkin’s report provides possible solutions to the looming crisis, including improvements to the Social Security system and the creation of new hybrid pension plans – he calls them “Universal, Secure and Adaptable (USA) Retirement Funds” – it is unlikely that a gridlocked and ideologically diverse Congress will act on his proposals anytime soon.

But for the 76 million “baby boomers” who are heading for retirement now and in the immediate future, time is running out. And are they afraid? Yes they are.

A recent study by the Allianz Life Insurance Company found that 92 percent of respondents agree with Senator Harkin that there is, indeed, a retirement crisis. And here’s an even more chilling statistic: 61 percent of those Americans surveyed said they were more afraid of outliving their money than they were of death.

Perhaps the term “crisis” is much too mild.

How about “apocalypse?”

Teens Are Counting on Parents to Finance Retirements, Study Shows

Attention moms and dads: your teens are counting on you for more than a few bucks for a movie or some new clothes. They’re depending on you to pay for their retirements too.


About 40 percent of young Americans aged 13 to 22 are expecting an inheritance and believe they don’t need to save for retirement, according to a study by the brokerage firm TD Ameritrade. At the same time, these so-called Generation Zers are hyper-focused on saving money for college.


“For even the most sophisticated investor, retirement planning can be a tough concept to grasp,” a TD spokeswoman said.


Generational Differences


The study found that individuals in Generations X and Y, those born between 1965 and 1989 who are slightly older than Generation Z, are paying close attention to their finances and retirement. Nearly 60 percent of both Gen Xers and Gen Yers make regular contributions to their retirement savings plans, and most started doing so in their early to mid-20s. That’s in sharp contrast to the Baby Boomers, now in their 60s and 70s, who typically started retirement savings at age 35.


The study also looked at more than 2,000 youths across the United States, showing that many young adults of Gen Z are acutely aware of financial difficulties since seeing their parents struggle through the recent recessions. They know the importance of saving money and putting it away for college, thanks to early conversation with their parents. Over half of these young adults have savings accounts, but only about eight percent said they are currently saving money for retirement. And only 16 percent of parents said they expect to leave an inheritance. These parents said the money they are saving is instead being tucked away for their own comfortable retirements. If there happens to be some left in the end, their kids will get it, parents said.


According to the study, Gen Zers and their parents have dramatically different ways of viewing their retirement finances:

  • About 45 percent of Gen Z survey participants said it’s never too late to start saving for retirement, compared to 71 percent of parents who said the same thing.
  • Nearly 40 percent of Gen Zers said they are planning on having an inheritance and don’t need to worry about retirement savings. About 16 percent of their parents said they plan on leaving inheritance money.
  • About 35 percent of Gen Zers said they wouldn’t be able to count on Social Security and need to start saving money for themselves. About 60 percent of parents said the same thing.


The bottom line is that Gen Zers do have good understanding of why saving money is important but are used to having their parents take care of financial matters. At the same time, these young adults are actively saving for college. More than 90 percent are enrolled in or plan to enroll in college. Nearly 70 percent of them said they are actively putting money away for college.

Study: Almost Half of Americans Die Poor

A recent study found that nearly half of all Americans live comfortable lives during retirement but die with little money in the bank.

According to the nonprofit National Bureau of Economic Research, 46 percent of retired Americans die with $10,000 or less in savings. But they have a relatively high standard of living because of generous pension plans and Social Security, the study found.

James Poterba, an economics professor who co-authored the study, said this survey makes it easy to extrapolate differing opinions about how America’s retired elderly are fairing financially.

“You can’t generalize that the elderly are not doing very well financially or that the elderly are doing fine. There is a lot of variation within the group,” Poterba said.

Measured at Retirement, at Death

The study tracked seniors, age 70 and older, from 1993 to 2008 and grouped them by marital status. The groups were always single, married at the start of retirement but single by death and married until death.

Of all these groups, those who were married at the time of retirement but died single fared better financially than the other groups. These individually typically had a median annual wealth of $600,000. Poterba said that the wealth is partially due to a having two retired earners who are both drawing pensions and collecting Social Security benefits. This allows for more of a financial cushion.

Conversely, single seniors were most likely to be poor with limited assets; many lived on less than $20,000 annually and died with less than $10,000 in the bank, the study said.

The study also found that those who had greater wealth lived longer. This could be because those with more money have greater access to healthcare and are more likely to see a doctor. Those who are poor are more likely to put off seeing a physician until a serious illness.

At the same time, an different survey found that more than one third of Americans near retirement age said that they don’t expect to retire any time soon. Many said it’s simply because they can’t afford it.

More Work Years Likely

According to a survey from the Society of Actuaries, many of these pre-retirees, as they are called, said one reason they want to continue working is that they want to stay active and engaged. However, a larger reason is that they cannot afford to retire.

The survey found that half of the current retirees reported that they retired before age 60, but only about one in 10 pre-retirees plan to retire that early. Those pre-retirees instead said they will wait until age 65 or older.

“Current trends in retirement indicate that people may need to work longer than they originally planned,” a retirement expert said. “In fact, many people are just guessing about how much money they will need in retirement.”

In addition, many current retirees end up returning to the work force. Some said they started a small business, while others ended up using an entirely new skill set in their post-retirement employment.

Seniors Lose Money to Family, Financial Scammers

An increasing number of seniors are becoming the target of predatory swindlers who come in two forms: those who convince seniors to make large financial investments based on bogus schemes and those who are family.

Seniors age 65 or older on average lose about $141,000 to financial scammers who convince them to poorly invest money in sham companies. These seniors are also losing hundreds and thousands of dollars to family members, typically adult children, who skim from their elderly, confused parents, according to the nonprofit Investor Protection Trust (IPT).

“Some of those financial scams by strangers can be ones that actually deplete the entire life savings of a senior at the worst possible time in their life,” experts said.

High Scam Rates

According to an IPT survey of nearly 3,000 financial planners, these seniors are lured to “educational” seminars that include free meals. These seminars are, in fact, sales pitches for sham investments. Most of these pitches include false promises of big returns.

The group’s findings determined that more than half of the planners interviewed had worked with an older client who has been victimized. Another 32 percent knew of an older person who was the subject of unfair, deceptive or abusive practices. More startling is the fact that only about 5 percent of victims report the abuse.

Experts say that many seniors are too embarrassed to report the crime, while others are afraid. Some don’t realize they have recourse. Sometimes, because of diminished mental capacity, they don’t even realize they’ve been victimized. About half of adults in their 80s struggle with dementia or a cognitive decline that severely limits financial-management skills. Researchers have found that the first place where diminished cognitive decline has an impact is in dealing with numbers.

Protecting Seniors

That’s where caregivers and physicians have stepped in. In response to the growing problem, IPT and several other nonprofits formed the Elderly Investment Fraud and Financial Exploitation prevention program. So far, it has trained more than 3,000 caregivers and medical professionals to help spot those who are vulnerable because of diminished mental capacity.

In addition, state lawmakers nationwide have put laws in place to protect elderly victims. The federal Department of Health and Human Services has also stepped into the fray, announcing a $5.5 million grant that will be distributed for elderly-abuse prevention programs. The department will work with the Justice Department and the new Consumer Financial Protection Bureau to coordinate efforts to stop the abuse, whether it’s from a stranger or a family member. Experts say there are some red flags that caregivers can watch out for to prevent abuse:

  • New or unusual bank transactions — Look for new patterns of transactions, including increased charitable giving and an increase in money transfers.
  • Keeping secrets — Scammers often tell seniors to keep the financial deals a secret under the guise of it being an exclusive offer. Also, seniors may be afraid to tell anyone about missing money for fear of getting someone in trouble.
  • Suspicious friends, phone calls or letters — If a scammer feels as though a senior is a ripe target, they may try to victimize him or her again.

Senior Citizens Strapped with Stifling Debt

Over the past few years, millions of older Americans have found themselves in a much more challenging financial position than they ever imagined. The American Dream, which once included a comfortable retirement at age 65 courtesy of pensions, Social Security and savings plans, has been replaced by something somewhat unexpected — seniors strapped with stifling debt.

American senior citizens are estimated to be the fastest growing age group to plummet into bankruptcy. An increased cost of living combined with mounting health care costs and minimal savings are considered the main contributors to this crisis.

A study completed by the University of Michigan Law School indicated bankruptcy among seniors doubled from 3.5 percent to 7 percent from 2002 to 2010. These numbers continue to grow as seniors continue to struggle with a tough economy.

Credit Card Trouble

According to John A. E. Pottow, a law professor at the University of Michigan, seniors carry 50 percent more credit card debt than younger people. In fact, credit cards are listed as the largest pitfall for senior citizens.

Faced with overwhelming health care costs, older people are often forced to use credit cards to make ends meet. Between the high cost of prescriptions, nursing homes, hospitalization and funeral costs, older Americans no longer have the income, sufficient health insurance coverage and/or the cash needed to take care of daily living or emergency needs. The issue is perpetuated as seniors live longer, requiring more years of health care and living expenses.

According to the University of Michigan study, nearly 70 percent of people 65 years old and older who filed bankruptcy in 2007 named credit card interest and fees as their biggest problem.

Many American senior citizens feel backed into a corner with credit card debt, hefty mortgage payments and property taxes, as Social Security pays for only the very basic needs. More than 30 percent of people 65 or older have a mortgage with a median balance of $56,000.

No Chance to Rebuild Financially

Another challenge for senior citizens is their inability to bring in the income they require to make a significant change. Older people may find it difficult to find employment as they compete with younger generations for salaries in a sluggish job market. They are not able to earn the extra money they need to keep up with the increased cost-of-living nor are they able to rebuild themselves financially like a younger person might.

Studies indicate all social classes are affected by this debt crisis. The Center for Retirement Research at Boston College stated that among households headed by people 65 and up with incomes over $100,000, 25 percent have mortgage liabilities.

As a result, some senior citizens are forced to refinance their homes or enter into a reverse mortgage in an effort to pay off their escalating debt. This is not an option for everyone, however, as the dramatic change in home values has significantly reduced home equity.

The problem is likely to continue for future generations as fewer Americans are able to set money aside for retirement because of the ever-struggling economy. In 2009, an estimated 75 percent of people were directing money into a retirement account. In 2012, this number fell to 66 percent. The extra cash they may have delegated for their future must now pay for an increased daily cost of living.