June 15, 2003
We all recognize the necessity of planning throughout our lifetimes for a comfortable retirement. It is likely that most of us have IRAs, 401Ks, pensions, stocks, bonds, mutual funds, or any combination of the preceding, which are intended to provide for us in our golden years. Society and circumstances have burned this necessity into our subconscious, and although most of us grumble about our negative returns of late, we continue to make our contributions without much thought. This is forgotten money that we don’t count on for everyday needs. Unfortunately many senior Americans did not follow the same planning, and it is harshly catching up to them.
Consider the following example. Joe is 68 years old and recently lost his wife, Mary, after a lengthy illness. Mary had always taken care of the household finances, and although Joe had access to the checkbook, he had always maintained the statements and meticulously managed their cash flow. She used their single credit card sparingly and always paid off the monthly balance. After Mary died, Joe lost her social security and pension payments, and finances got tight. One day in the grocery store he realized that he had forgotten the checkbook, so he used a credit card. The convenience lead to more usage, and when one month he saw that he was over the spending limit, he was alarmed yet relieved to see that the credit card company agreed to increase his spending limit due to her perfect payment record. One thing lead to another as prescriptions needed to be filled, home and auto repairs were necessary, heating oil had to be filled and other bills were paid. Month after month Joe continued to use his credit cards, pay monthly minimum balances, and have new cards issued in his name. At last, his visiting daughter noticed an alarmingly large credit card bill and questioned it. They consulted with a lawyer within the next week after realizing that Joe was hopelessly in debt.
Although this example is fictional, it is representative of the 450,000+ elderly citizens’ bankruptcies reported in 2002. Job loss, death of a spouse, medical expenses and financial support of family members, combined with reduced retirement income sometimes results in financial devastation for seniors. Often widows and widowers, but sometimes married couples too reach for any means they can find to sustain themselves, and that’s what many of them do, just make ends meet. According to the most recent statistics from the Social Security Administration website, from December 2001, the average social security benefit for retired workers was a mere $874 per month, and 45.9 million people drew a benefit. Without alternate resources, elderly people must find other means to pay for life’s necessities as inflation and costs of living rise faster than their benefit checks.
In the past, some seniors looked to the equity in their homes as a means to acquire additional living finds. However, due to the financial industry trend of consolidation and acquirement by larger concerns, utilizing a home’s equity is becoming a somewhat frustrating and scary option to those who have always relied on their personal reputation and their relationship with others to facilitate all the deals that they made. Also now more banks require earned income to qualify for a mortgage, regardless of the substantial equity in the residence. Fear of the unknown and intimidation makes the simplicity of acquiring credit cards a more attractive option to elderly people who need additional financial resources.
Credit card abuse has become rampant among those seniors who can’t make ends meet. The collision of the self-discipline that always forced them to pay off their monthly debts with the misfortune that necessitates debt accumulation causes additional anguish as these highly moral and proud citizens become deeply ashamed of their situation. It is unlikely that they will seek help on their own, as they desperately try to hide their downward spiral from those closest to them.
So how can we determine if our own parents are in a similar situation, and what can we do to assist them? While meddling in our folks’ affairs is an unattractive option, we should maintain an awareness of their expenses. Keep an eye on the number of prescriptions that they fill monthly, as these costs rapidly mount. Watch out for necessary home repairs to help them make sound decisions, so they are not taken advantage of. Talk to them about unscrupulous telemarketers and get rich quick schemes, while reminding them that if it sounds too good to be true, it is. Remember that single elderly people are often lonely and succumb to these schemes due to the simple fact that there is someone on the other end of the line who is actually giving them attention. Watch out for multiple credit card bills. Several cards can suggest a problem. Sophisticated estate planning can offer tax relief and help in managing finances as well, so we can lead our parents in this direction.
Our parents may be living in their own private financial hell without our knowledge. Awareness and pro-activity on our part can reduce their susceptibility to financial devastation. The tools are there, and they will likely not reach out for help on their own, so it is our responsibility to help them.
BusinessWest, May 2003
Michael B. Katz, Esquire, is a senior partner with Bacon & Wilson, P.C. in Springfield, MA. He specializes in business, insolvency and healthcare legal matters and he can be reached at 413-781-0560 or email@example.com
by: Michael B. Katz, Esquire