Seniors Piling On More Debt

The generation that lived through the Depression and is known for its thrift and adverseness to debt is now piling it on.

Early Show Financial Advisor Ray Martin says between 1992 and 2000, the amount of household debt for people over 65 nearly tripled. The household debt includes credit cards, home-equity loans, installment loans, vehicle loans and margin accounts from brokerage firms.

According to SRI Consulting Business Intelligence, 58.8 percent of all seniors carried some debt last year, compared to only 35 percent with debt in 1992. The average credit-card balance carried by seniors rose 48 percent from $1,280 in 1992 to $1,897 in 2000.

A Harvard study found that although older Americans comprise the smallest proportion of total bankruptcy filings, they are the fastest-growing group to find itself in financial trouble. The number of bankrupt seniors jumped 244 percent between 1991 and 2001. The University of Texas at Austin estimates that 82,890 senior will file for bankruptcy this year alone.

What's pushing older Americans into debt? Martin says there are a variety of factors that contribute to the elders' financial trouble.

• Many seniors simply haven't saved enough for retirement. According to the 2002 Retirement Confidence Survey, 44 percent of retirees age 60 or older have saved $75,000 or less. Eleven percent have saved nothing at all. Forty-four percent cite Social Security as their primary source of income. And, this trend is sure to continue. A recent AARP study found that less than half of baby boomers save for retirement regularly. A lack of savings combined with an increased life span is a recipe for trouble.
• Older Americans who rely on Social Security have been hurt by the low cost of living increases of recent years. The 1.4 percent increase in Social Security Retirement Benefits in 2003 does not amount enough to offset rises in other costs that have increased many times more.
• There's been plenty of publicity about investors losing large chunks of their retirement savings in the stock market. But seniors have also been hurt by the lowest interest rates in 41 years. Martin says conventional wisdom says that the older you get, the less stock you should have. You should put your money in more conservative investments. Unfortunately, the bear market and accompanying low interest rates have torn many of these conservative, fixed investments, apart.

  The Fed's series of rate cuts have reduced rates to their lowest level in 41 years and gutted the monthly earnings of many elderly investors trying to make ends meet. This problem is even more severe because rates have fallen so quickly.

  Martin says rising home values have helped homeowners get bigger mortgages at lower rates with lower payments. But seniors who tend to own their homes and stay put were hurt by rising property tax bills that come with rising property values.

• Rising medical costs - Only 34 percent of large companies offer retiree health coverage and Medicare does little to cover prescription drug costs.

  The Commonwealth Fund reports that out-of-pocket health care expenses for seniors increased almost 50 percent from 1999 to 2001. What all of this means for retirees is that many are unable to afford the drugs they need; others are quickly sinking in debt.

  For those living on a tight fixed income, an unexpected expense - be it surgery or a leaky roof - can quickly lead to disaster, according to Martin.

Luckily, programs exist to help seniors struggling to cover basic expenses and to help them make the most of their assets. However, Martin says, pride, confusion and lack of education keep many from utilizing these options.

Martin suggests the following to help seniors cope with financial hard times:

Reverse Mortgages
Martin says older homeowners living on fixed incomes in homes which have appreciated enormously in value are literally "house rich but cash poor." They can take advantage of their biggest asset by receiving a "reverse mortgage." Reverse mortgage arrangements enable older homeowners to convert the equity in their homes into additional income. These are a relatively new product - only about 13,000 were taken out by seniors last year.

If seniors want to stay put but cannot pay for rising property taxes and repairs, they should look into "Home Keeper Mortgage" and the "Home Equity Conversion Mortgage" offered by Federal National Mortgage Association approved lenders. The programs provide monthly payments to the homeowner for a fixed period or for as long as they occupy the home.

To qualify: you must own and occupy the home, be at least age 62 and have low or no balance on an existing mortgage.

Take Advantage of Prescription Drug Affordability Programs
In March, Pfizer announced its Share Card program, which offers low-income seniors a $15 flat fee for their prescription drugs. Johnson & Johnson, Bristol Meyers Squib, Abbot Labs and others quickly followed by announcing similar programs.

Under Pfizer's Share Card program, which can be used at pharmacies such as CVS and Wal-Mart, qualifying seniors can buy a 30-day supply of over 80 Pfizer prescription medicines for a flat fee of $15.

To qualify for Share Card: Individuals must be enrolled in Medicare and have annual gross income below $24,000 for couples and $18,000 for individuals.

Under Johnson & Johnson's Together Rx Card, seniors can obtain savings ranging from approximately 20 to 40 percent off the price of prescription medicines.

To qualify for Together Rx Card: Individuals must be enrolled in Medicare and have annual gross incomes below $38,000 for couples and $28,000 for individuals.

Take Advantage of Property Tax Relief Programs
Even after their mortgage is paid off, Martin says, seniors on fixed incomes can have trouble paying their property taxes. To help with this burden, many states have enacted programs to assist the elderly with these bills. In some states you only need be 55 to qualify for tax relief. The three most common types of tax relief programs are homestead exemptions, property tax credits and property tax deferrals. Some programs are regulated by the state, others by local municipalities. In some cases, dependent upon your personal circumstances and where you live, you may be eligible for multiple programs.

Examples: Under New York's STAR program, qualifying seniors can exempt the first $50,000 of the full value of their home from school property taxes. Other states, such as New Jersey, offer a Tax Credit of up to $250 from their property taxes to seniors age 65 who meet certain income and residency requirements. A permanent resident of Florida 65 years old or older may defer that portion of the tax that exceeds 3 percent of the applicant's household income for the previous year.

To qualify: Requirements vary based on where you live. Click into Senior Living for a list of property tax relief programs available by state.

Take Advantage of Energy and Weatherization Assistance
Martin says low-income elderly are eligible for grants to pay fuel bills under the Low Income Home Energy Assistance Act.

To qualify: Individuals must be recipients of SSI, VA benefits or other forms of public assistance; or individuals must have incomes less than 200 percent of the state's poverty level or 60 percent of the states median income.

Grants of up to $1,600 per dwelling unit for weatherizing a home or apartment are also available to qualifying individuals, age 60 and older.

Contact the Department of Energy for contact in your state that administers the programs that are connected with the Low Income Home Energy Assistance program.

Debt Counselors
Debt Counselors report seeing more elderly clients than ever before. Many seniors turn to these businesses because they are not aware of other options like the ones Martin mentions above. He says that although debt counselors can provide a valuable service, seniors must know that the counselors are truly acting as bill collectors for creditors. Martin suggests seniors know the consequences before using their services.