A growing problem for older Americans
Many older Americans are struggling to meet their expenses. Some have become dependent on credit cards to juggle their bills.
The percentage of Americans filing for bankruptcy who were age 65 or older multiplied from 2% in 1991 to 12% in 2016.
A combination of factors contributes to this problem, including spiraling healthcare costs not covered by declining Medicare coverage, unpaid student loans (for themselves, their children, or their grandchildren), and stagnating incomes stemming from insufficient retirement savings. As defined benefit pension plans common a quarter of a century ago are decreasingly available, investment in employer-sponsored defined contribution plans is more and more important for employees looking to avoid bankruptcy in retirement.
What you should know
- Borrowers in their 70s held $1.16 trillion of debt in the second quarter of 2019, double the $540 billion of debt borrowers in their 70s held in 2008 (during the Great Recession).
- Plan sponsors should be aware of this problem and consider ways to address it, including: employee education, financial wellness programs, and automatic plan design features.
- Employee education can be targeted to both younger employees who can be encouraged to start preparing for retirement earlier and those nearing retirement age who may benefit from a tailored approach to their more short-term concerns.
- Financial wellness programs can help employees of all ages understand general financial issues and encourage taking a holistic approach to retirement planning that includes healthcare and long-term care costs.
- Both automatic enrollment and automatic escalation features can help achieve greater employee participation in the plan and drive increased deferral rates.