By Dennis McFadden; Retired president/CEO
As baby boomers replace the “greatest generation” among the senior population, some of the behaviors we associate with members of that age group begin to take on a different cast from those of the prior generation. This creates new challenges for seniors and their care givers.
The Greatest Generation famously scrimped and saved. The Great Depression was either their formative life experience or the effects of it still loomed large in their mindsets. When I would examine the financial files of applicants to Atherton Homes from members of this generational cohort, it was not unusual to find school teachers and bookkeepers, bank tellers and homemakers, who had managed to amass a significant base of assets through a pattern of disciplined savings and reduced spending.
The baby boomers, by contrast, are noted for their spending more than their savings habits. And, with the easy credit and exponential explosion of credit card usage during their lifetimes, many older adults reach their retirement years without adequate resources to cover maintaining their lifestyles.
For a significant pool of seniors, credit cards are their default way to cope with the unexpected expenses that exceed their income. With generous credit limits and multiple cards, such a strategy may actually succeed . . . for a time. Sooner or later, credit limits will be reached, minimum monthly payments will become unmanageable, and interest rates may rise. And even those attractive 0% teaser offers eventually end, only to be replaced by high double-digit rates.
Experts suggest that seniors and those who love them find ways to reduce debt and put the aging baby boomer back on the path to financial well being. The National Council on Aging, for instance, has proposed four practical steps to financial stability for seniors.
- Figure out a repayment plan.
For the person facing a mountain of unpaid debt, often with multiple creditors, there are at least two ways to reduce the mound to manageable size. First, some financial counselors advise identifying the debt with the highest rate and directing resources to paying it down while making only minimum payments on the rest. By eliminating the highest rate debt first, it reduces the overall cost.
Others emphasize the emotional satisfaction of watching various debts disappear. If you begin with your smallest debt first, you will enjoy seeing the bewildering number of your accounts disappear before your eyes.
Either way, the National Council on Aging has a free online debt calculator that can assist you in showing the benefits of following various scenarios: https://calculator.benefitscheckup.org/how-to/how-to-pay-down-debt
- Consider credit counseling
Those for whom debt payments total more than 20% of their income may find that a good first step involves a visit with a credit counselor. Reputable credit counselors are adept at helping people begin to examine the scope of the problem, to organize their finances, and to develop a practical budget that will work for them.
The Los Angeles area is rich in professionals who can advise you for a reasonable fee. Some nonprofits offer such services free or for discounted fees pegged to one’s ability to pay.
Those concerned about the dangers of scams targeting seniors can find a list of pre-vetted counseling agencies approved by the U.S. Department of Justice on the Internet: http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm.
- Get help with family budgeting
Paying down debts will only result in a positive overall outcome if spending habits are brought into control and balanced with income. Seniors and those who love them may need to review spending patterns. Ultimately, the myth that I can spend today and pay tomorrow because of my anticipated promotion, pay raise, or better job, becomes even more untenable in retirement years. Unless someone is willing to return to the workforce, an idea that has become dramatically more popular with seniors in recent years, there will never be enough “more” tomorrow to cover the extra spending today. For some seniors unwilling to accept a reduced standard of living and healthy enough to handle it, a part-time job may be the best way to make up deficits and help balance their budget.
And as with some of the other suggestions, the National Council on Aging offers a wonderful Web-based tool for helping you bring your spending under control. It walks a person through a process of targeting what you want, identifying what to cut, and moving toward successful implementation: https://calculator.benefitscheckup.org/calculators/control-your-spending.
- Learn about bankruptcy filing
A clear-eyed survey of one’s debts and income may result in the conclusion that the problem has gone beyond the possibility for skrimping and saving to resolve the issues. In some cases, unexpected medical expenses, catastrophic failures of investments, and business closings may leave the senior with no good alternatives other than a legal one.
Bankruptcy is the legal procedure that allows you to reorganize your financial situation or discharge your debts if you cannot pay them. A good attorney, particularly one with experience with seniors and their needs, can be extraordinarily helpful in weighing the options before committing to one best suited for your unique situation.
As we take stock of our financial situation early in the year, these strategies of prudent assessment and practical implementation can greatly enhance the peace of mind of the senior living on a fixed income.
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