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Rising Retiree Bankruptcies? It’s a Myth

retiree bankruptcies mythDo retirees face a crisis of rising bankruptcies? That’s what pretty much every major news outlet would have you believe. “The boomers going bust: why elderly bankruptcy is rising in America,” headlines a recent long-form article in the Financial Times. “Bankruptcy Booms Among Older Americans,” says the New York Times, while the Washington Post tells us that “Bankruptcy filings surging for seniors.”

“Bankruptcy is hitting more older Americans, pointing to a retirement crisis in the making,” writes Los Angeles Times columnist Michael Hiltzik. And these news stories all point to the same purported causes: declining incomes due to falling Social Security benefits and disappearing traditional pensions, coupled with rising retiree healthcare costs.

But claims of rising retiree bankruptcies are just plain false. They reflect the news media’s bizarre obsession with portraying Americans’ retirement security in the most dire terms possible, perhaps out of a desire for more clicks and views.

The Federal Reserve Bank of New York’s Consumer Credit Panel is based on over 13 million credit reports drawn from the credit bureau Equifax. Despite the New York Times claims that bankruptcy is hitting “a rapidly growing share of older Americans,” the Fed’s data show that show that from 2000 to 2018, the bankruptcy rate for Americans age 60 and over fell by 37% — from 4.1 bankruptcies per 1,000 Americans in 2000 to just 2.6 per 1,000 in 2018.

As a 2018 Fed analysis points out, “bankruptcy filings among older Americans have always been quite low. Even after climbing during the Great Recession, filings fell again to very low levels.”

Moreover, other indicators of retiree financial distress in the Consumer Credit Panel, such as rates of home foreclosure and credit card delinquencies, are also lower today than they were in 2000. In short, you just can’t factually paint the picture these news stories portray.

The “bankruptcy boom” stories have a number of errors in common, all of which point to careless journalism.

First, the newspapers relied on a single study that used samples as small as 120 retirees and measured bankruptcies inconsistently between different years. The far superior Fed data were only a Google search away, yet none of these journalists seemed able to locate them.

Second, even the single study they relied upon finds only an increase in retiree bankruptcy rates between 1991 and 2001, with no indications of significant change in the nearly two decades since that time. That seems noteworthy in itself, but none of the media treatments of supposedly booming bankruptcies even noted it.

Moreover, from 1991 to 2001 bankruptcies rose among Americans of all ages, making retiree-specific causes like disappearing pensions a highly unlikely culprit. A more likely culprit is the Bankruptcy Reform Act of 1994, which a Federal Reserve analysis states, “actually encouraged bankruptcy by increasing personal property federal exemptions.”

This point is key: bankruptcy rates depend as much on legal eligibility rules as on changing economic conditions.

So what can we say about retirees’ financial security? Well, what retirees themselves say is that they’re doing well. In the Fed’s 2018 Survey of Household Economics and Decisionmaking, only 4% of retirees said they were “finding it hard to get by.” Likewise, 75% of retirees in the Fed’s 2016 Survey of Consumer Finances said they had at least enough money to maintain their pre-retirement standard of living, versus only 61% in 1992. Congressional Budget Office data show that since 1979, incomes for retirees have risen dramatically faster than for working-age households, and Census Bureau data show that poverty in old age is rarer than among working-age adults or kids.

Things aren’t perfect, but this isn’t a picture of growing financial insecurity.

How do these major media outlets, supposedly employing the best-and-brightest journalists, get retiree bankruptcies so wrong? The same way they get nearly everything on retirement incomes wrong. They buy unquestioningly into a narrative that retirees are living on the brink and workers are saving little for old age. They cling to this erroneous notion in the face of data from the U.S. Census Bureau, the Federal Reserve, the IRS and others showing that poverty among retirees has never been lower and savings by workers has never been higher.

Retirement is a hugely important issue, but Americans are being disserved by the media’s coverage of it.

Reprinted with permission from - AEI.org - by Andrew G. Biggs

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