I’ll give it to the New York Times: say what you will about the decline of the print media, the Gray Lady can still set the news agenda. On August 5th the Times “Too Little Too Late’: Bankruptcy Booms Among Older Americans,” which claimed that bankruptcies among retirees have skyrocketed due to “vanishing pensions, soaring medical expenses, inadequate savings.” In the days that followed, news outlets large and small produced copycat stories repeating the same findings, all of which were drawn from a single study.
Let’s cut to the chase: it’s mostly hot air. There’s no boom in retiree bankruptcies, nor are there vanishing pensions, soaring medical expenses or inadequate savings. And the fact that the Times generated a long-form story from a single source without referencing a single doubter, and that even major papers like the Wall Street Journal and Los Angeles Times followed suit, is more evidence to mythat the media’s treatment of retirement savings issues leaves a lot to be desired.
Let’s start with the, produced by three law professors and a sociologist, all very much on a mission. I can’t really do it justice, it’s something you need to read for yourself. But you get where the authors are coming from when they state as background – with a footnote, mind you – that:
National concern for the well-being of older Americans soon declined, beginning in the early-1980s, especially as the cost of funding their social safety net strained state and federal budgets. This financial tension and emerging ideological shifts promoted an intergenerational war. Conservatives, free market advocates, and media promoted the image of older Americans as “a threat to economic viability,” as thieves of our children’s futures, and as “responsible for the nation’s economic problems.”
If there was an intergenerational war then retirees won it, since entitlement spending on the elderly has skyrocketed since the early 1980s, but a lot of what the authors state is simply too ideologically-loaded to bother responding to. Yet the study is chock full of this stuff, which should get a good journalist’s spider-sense tingling.
But let’s get to the data, such as they are. The study uses its own survey data, which I’ll accept as valid despite small over-65 sample sizes and changing methodology over time. The reason I can overlook these issues is that the study itself finds that the over-65 bankruptcy rate hasn’t changed since 2001.
The study does show a substantial increase in the over-65 bankruptcy rate from 1991 to 2001, rising from 0.8 per thousand people to 2.7 per thousand people. But since 2001…pretty much nothing. (Hat tip to Mother Jones’s Kevin Drum for being the first to make this point.) A slight downtick in 2007, then back up in 2013-2016, but since the 2013-2016 sample is only about 120 retirees the margin of error is pretty large. Regardless according to the very study cited by the Times the over-65 bankruptcy has remained essentially unchanged for the last 15 years, but to the New York Times and its band of credulous media followers that’s a “boom.”
I can think of a lot of reasons why the over-65 bankruptcy rate rose from 1991 to 2001, but most of them are the same reasons the under-65 bankruptcy rate rose by a roughly similar amount over that period, including Americans’ increased willingness to take on mortgage, credit card and other debt, which leaves them more vulnerable during an economic downturn, coinciding with Americans’ increased inclination to attempt to discharge excessive debts via bankruptcy. The Federal Reserve alsothe Bankruptcy Reform Act of 1994, which “actually encouraged bankruptcy by increasing personal property federal exemptions.”
Reasons that don’t strike me as particularly compelling include those cited by the Times — “vanishing pensions, soaring medical expenses, inadequate savings.” Pensions weren’t ever very common to begin with and Census Bureauhas found that from 1989 to 2003 – roughly the period in which retiree bankruptcies rose – the percentage of new retirees receiving private retirement plan benefits rose from 32% to 44% and average benefits contingent upon receipt rose by 64% above inflation.
The same goes for healthcare costs. The chart below shows out-of-pocket health spending as a percentage of household incomes from 1984 through 2016. See a trend? Me, neither. Moreover, as the Times itself recently, the widespread claim that health costs are a major cause of bankruptcies has turned out to be not exactly true.
As for “inadequate savings,” well the net worth of the median retiree household in 2001 was 61% higher in real terms than in 1989, according to the Survey of Consumer Finances. The simple fact that retirees file for bankruptcy at far lower rates than working-age households should be a hint that things aren’t so bad.
But here’s another hint: declining savings and rising health care costs were the main drivers of rising retiree bankruptcies, wouldn’t we expect that within the retiree population we’d see higher bankruptcy rates among older retirees, whose savings have been drawn down and whose health costs have risen? We sure would, but the data don’t cooperate: bankruptcies fall as near-retirees shift into retirement and fall further as retirees age. In fact, a 2007 study whose authors include now-Senator Elizabeth Warren found that bankruptcy rates among Americans over age 85 were so low as to be “negligible.”
Dear Journalists: this is why you should search out multiple sources. This entire narrative of a retiree bankruptcy boom and its supposed causes falls apart as soon as you start pulling at the strings. But if you rely on a single source with an obviously skewed narrative there’s no one there to pull at those strings and you run the risk of getting your story wrong.
Does America Face a "Boom" in Retiree Bankruptcies? – Forbes