Why the very old face a financial doomsday

People older than 75 are in crisis, struggling with rising debt and falling returns on fixed assets.

By Aimee Picchi Jul 17, 2013 2:46PM

Elderly Woman Looking Out a Window © Keith Brofsky, Photodisc, Getty ImagesSo much for the golden years. 

People over 75 are increasingly in financial crisis, incurring mounting credit card debt while dealing with low interest rates that crush returns on their nest eggs. As Michael Hiltzik in the Los Angeles Times notes, "The facts are sobering."

Americans over 75 lost almost one-third of their financial assets from 2007 to 2010, according to a study from AARP Public Policy Institute. On top of that, the group is adding on debt. Nearly 22% of people 75 and older carry credit card debt, a rise from 18.8% in 2007. 

Part of the problem plaguing seniors is the current financial environment marked by low interest rates, which have diminished the returns for retirees who placed their assets in fixed-rate instruments. 

As a result, the 4% rule may no longer hold valid for retirees. That guideline, developed in the 1990s, says if retirees withdraw about 4.5% of their savings every year, their retirement assets should span three decades. 

But that rule was developed when portfolios earned about 8%, about double today's returns, The New York Times pointed out in a recent article.

On top of that, retirees get a double whammy if Social Security benefits are tweaked to link them to the chained CPI, a version of the consumer price index. Supported by both President Barack Obama and conservatives, the chained CPI grows more slowly than the current inflation metric. Critics say the effect will be a stealth tax on seniors.

While some retirees have built solid nest eggs, the truth is that almost half of senior citizens die nearly broke, according to a study last year from James Poterba of MIT, Steven Venti of Dartmouth College and David A. Wise of Harvard University. Their research found that 46% of seniors die with less than $10,000 in assets, indicating they're unlikely to withstand financial emergencies. 

What are some options for the very old? The L.A. Times' Hiltzik noted how few choices there are, but one would be to "enhance Social Security benefits for older retirees." Another idea is for older seniors to invest in an advanced-life deferred annuity, offered by companies such as MetLife (MET). The investments start paying out only once the investor reaches, yes, an advanced age. That would help guarantee financial security for the very old. 

As AARP expert Debra Whitman told Hiltzik, "The oldest old are suffering a great deal now."

Follow Aimee Picchi on Twitter at @aimeepicchi. 

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Jul 17, 2013 4:16PM
Amazing how you always see that social security will run out of money by a certain date; but you never read anything about welfare running out of money - why don't we make the welfare people pay into social security out of their benefits or get a job so they can contribute to social security - maybe then it would have enough for those of us who have worked our butts off all our lives.
Jul 17, 2013 3:30PM
What today's Seniors are facing is a Walk in the Park compared to what the next Generation of Seniors will have to face. Future Seniors will face a Bankrupt Social Security and Medicare Fund and a Country that is literally, flat Broke, no Bailouts for anyone.
"the truth is that almost half of seniors citizens die nearly broke", that's the way the government and Wallstreet wants it, the more money the people have the less money the government and Wallstreet have.  They can't take it illegally so they take it through creating an economic crisis that fills their pockets and empties ours.  The sad thing is there is nothing we can do about it because both parties are in bed with each other on this one.
Jul 17, 2013 3:43PM
Job well done Ben (and Greenspan)...But at least we've artificially appreciated the stock markets to astronomical heights.  
Jul 17, 2013 3:39PM
Those seniors are liquidating their Blue Chips to cover base debt and to help their families out while they are alive. They are old, not dumb. That said... there is a crappy propaganda article about how we should be investing in Blue Chips, today. You mass-terminated us, hired kids at slave rates and put your loser junior alumni in management to act like reckless slave drivers. We don't just live that... we tell grandma about it. There isn't one Blue Chip in existence that America wouldn't benefit more from if it was divested and it's Board driven out of the country.
Jul 17, 2013 4:39PM
all they have to do is build a raft, not bathe for a couple of months , flow down their closest river, land near any government agency,  start speaking with a foreign accent , and they should be set for life .
Jul 17, 2013 3:15PM
What? No snide comments about how ....
1) the elderly should have prepared themselves better for retirement?
2) the elderly should be turned into mulch, since they are taking too many entitlements?
3) the elderly should have to work until they are dead, to stave off Alzheimer's ?

Come on, Neo-cons....where's the team spirit?

Or is Matthew 25:40 just a bunch of hogwash when it comes to action?
:"And the King shall answer and say unto them, Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me."

Without the elderly WE would NOT even be here.  Cherish that anterior 'platform' !

Jul 17, 2013 3:24PM

If I had listened to my financial advisors back in 2000 I'd be in the same boat.  I started in vesting in 1991 with a $15,000 nest egg.  By 2000 I had reached $41,000.  I was advised to put all my investments in bonds so I wouldn't lose any money.  My wife and I both retired in 2000 but were lured back to work in in 6 months.  We saved and invested 90 percent of our SS checks until we retired for good in 2009.  By then we had $200,000.  We are now 40 percent high dividend, low volatility stocks and 55 percent bond funds and 5 percent cash.  We can draw $3000 a month for the rest of our lives.

Jul 17, 2013 3:50PM

..."almost ,..." If it is planned right what is wrong with that?? when you die, you cant take it with you. While it is nice to have a cushion for a refrig or stove or other repairs or even a gift to your children - you earned it you should be able to spend it - you saved/invested the money to see you through retirement. I know many seniors are not enjoying the "golden years" due to health, inflation, prices but are getting by on their own power which is a "value" that has no price tag.

The real issue is the generation coming behind them - many financial articles over teh past year or so are saying that to retire you need ot have 1.5 mill - even the common upper educated wage earner isnt going have investments or retirement funds that will reach that goal in these unsettled markets. And just think we have only started the inflation period that our kids and grandkids will have to deal with along with trying to pay off the (intra)national debt. Doesnt that just make you wish you had those worthless green backs to stuff the materuss with???

Jul 17, 2013 4:39PM
And congress will not help with Social Security. With the situation on pensions, this is only going to get much worse. It is a discrase. And meanwhile, if you work for the government you get a pension. Criminal. This is not a government (governments actuailly with state and local) for the people, it is a government for the government employees, particularly congressmen and the president.
Jul 17, 2013 4:34PM

when , about double today's returns

Double? Show me where a senior can get a short term, guaranteed rate of 4%!

Jul 17, 2013 4:24PM
I agree with Dave 1230 and to add to this, corporations paying minimum wage with no advancement because of out sourcing and low taxes for the rich. We might as well give everything to the CEOs as billions and billions of profits are not enough for them ,and of course the GOP gets their donations from them so no fairness from them also. Sorry seniors welcome to the third world America that was stole from you by corporate donations.    
Jul 17, 2013 5:13PM
The USA has been electronically creating(aka the modern printing press) money to cover the entire annual $ trillion + deficits since Tarp 1 in 2008 to the present. We have run out of other people's money, Our treasury bonds are junk and no one is buying them. So the fereral reserve has become our front for laundering the deficits by creating magic money. All those who live in la la land, in search type Bernanke bond program and face reality. We are getting away with this temporarlly because the USA is to big to fail. If we go down China, Japan, South Korea, Mexico etc( our wholesalers of goods) will go down with us. Also The USA is the dept of defense for all of the above and Germany etc. If we go down these countries don't even have nuclear weapons. The music will stop shortly and the dollar will be removed as the world's reserve currency. The dollar will collapse to a worthless currency. We are all going to financially collapse. To all those americans who think financial stability is another entitlement, sorry to spoil your day.
Jul 17, 2013 5:14PM
As long as our 'elected' officials continue to be puppets for K-Street, Congress operating as a Plutocracy rather than a Democracy, we are all screwed no matter what age we are.   Until we repeal all laws that benefit too big to fail corporations such as the gutting of the Glass-Steagall/Banking Act of 1936 which ushered in MORTGAGE DERIVATIVES GAMBLING AS OF 2000 and recreated the same environment that resulted in the Great Depression of 1929, until we end participation in NAFTA which has allowed these corporations to off-shore millions of jobs, profits and taxes, America itself and 90% of it's population has no chance to recover.    We have people like the Koch Brothers who have led the slaughter of Unions, Employee Rights, and Middle Class Wages.   We have people like Rupert Murdoch who manufacture propaganda that pits neighbor against neighbor, we have people like the Bushes who build an Iraq-Afghan Pipeline under the guise of war using the blood, sweat, tears, lives and money of the poor and middle class.  But what does the economy matter when 'Pro-Life' is always their answer?  Better review Hitler's master plan, it reads like modern day history from 2000 forward.
Jul 17, 2013 3:05PM
The whole point of the 4% rule was that it was not based on "today's" earnings, but on earnings over a 30 year period. Moreover, a balanced portfolio which remained steadily invested over the last few years would have done very well despite the crisis. I think it's still a good rule, but you need to be diversified over all market segments - and bear in mind that about 40% of the market is international.

Jul 17, 2013 5:30PM

   I hat to sound callous but a lot of seniors voted to Obama!  I said this 4 years ago, Obama talks a good game of "fair" Obama talks about helping the poor, Retired and middle class and yet Obama has hurt all of them and the worst is yet to come!

   Social security is going broke and Obama gives a SS holiday ? Obama fix's interest rates at near 0-1/2 % for the banks who only pay 1 % interest on money held in accounts! This interest is what a lot of seniors live on! 

   prices are increasing because Obama is printing trillions of dollars every year thus devaluing the value of the US dollar!  This means it takes more money to buy things because the dollar is worth less and less every month since Obama took office! 

    Obama has passed so many anti business regulations and then wonders why business are not expanding or hiring!

    Obama care that could cost employers up to 6000 per year per employee if they work over 30 hours per week. Just try to find a Full time 40 hour week low skill job now! Obama new rules for counting the unemployed , counts you as employed no matter how many or little hours you work!  Just more BS for Obama.

    Things are great Obama says but more people are on government assistance than EVER! 

   Wake up American, Obama is not your friend!  Seniors if you continue voting for a socialist progressive democrat you deserve to be broke!!   Remember you gave him the power for hope and change and that is all we are being left with ,  Some Change!!  and no hope except for mid term elections to start turning things around!! 

Jul 17, 2013 7:36PM
Sad that the media never talked about this during the last President Elections. Instead of asking the tough questions of the Democrats and Republicans, they waste time on other things.  The funniest thing is both Democrats and Republicans cut Social Security in different ways, but never cut the government benefits they get. 
Jul 17, 2013 5:43PM
The way elected officials turn their backs on the common man and leave a non-elected FED to condemn the masses to a life of poverty so bankers can get 9 digit bonuses is obscene to say the least. It is happening because YOUR elected official let it happen. Outside of one or two politicians who see it for what it is, most of them are turning a blind eye because they are riding the gravy train themselves and getting rich in the process.
Well at least those that reelected that Chicago hustler will now start to suffer too. People who work will see their hours cut and no benefits. They won't cut any foreign aid to countries that hate us and just keep printing more. Obama will destroy everything that others have fought and died for. And you put him there. Senior's need to get together and get angry. And not with AARP. They are a waste of time.
Jul 17, 2013 6:50PM
NO COUNTRY FOR OLD MEN.  My house is worth ****, my investment the same.  At 62 goodbye united states. I hate saying that but more and more Americans are moving out.  What a shame when you can not afford your own country.
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