Reasons for Bankruptcy
- Reduced Income – typically, Americans find themselves with a smaller income after retiring, based on Social Security or a pension to keep them afloat. But, Social Security most likely won’t help ends meet.
- Credit Card Debt – because Seniors are living on a fixed income, many are living beyond their means and debt begins to mount. Credit card use rises, in order to supplement income or expenses.
- Health & Medication Expenses – because of the skyrocketing costs of healthcare and medicine, many expenses are hard to keep up with increasing medical debt.
- Declining Stock Market – as we’ve seen in recent years, the stock market has been volatile and retirees had been banking on living on the gains from the market to live on, during retirement. Many have since found themselves with significantly less and are having a hard time supporting themselves.
Avoiding Bankruptcy
- Manage your Spending – before even going into retirement, start getting used to living on less as when having a full-time job. By getting spending under control while you are working, you’ll keep debt levels low and increase your savings for retirement. Make sure that you are as free of debt as possible when entering retirement.
- Diversify your Portfolio – as I’ve mentioned in other posts [link to a previous post], diversification is key to securing your portfolio during bear markets or recessions. The general rule is to spread out your assets across several different types of investments like dividend-paying stocks, bonds, mutual funds, annuities, and certificates of deposits (CD’s). So, if one of these types of assets performs badly, it will be supported and mitigated by the other types of assets.
- Get a Second Job – working during retirement, whether part-time or full-time, will help stretch your savings far into your golden years. Finding work will help you supplement your income from what you are already receiving from pensions or Social Security. Working even part-time will not have to affect lifestyle, and you won’t have to take drastic steps after finding that your savings may be running out if you don’t continue working.
Considering Bankruptcy
Bankruptcy is not only about releasing your debts, but it’s also about protecting your future. Filing for Chapter 13 Bankruptcy allows you to restructure your debt. One positive aspect with this kind of filing is that Chapter 13 lets you keep your home and your retirement savings.
One rule of thumb is that you should never use your retirement accounts as collateral for loans. Doing so may put your retirement account at risk when filing for bankruptcy.
Also, it’s never a good idea to withdraw from the future to pay off for today. Never withdraw from your retirement account to pay off debts or living expenses when you are in financial duress. This is a sign that you may need to look into bankruptcy. Taking out money from your retirement accounts is a big mistake, because when you file for bankruptcy, there’s no way to protect the money you have already withdrawn. Bankruptcy protects your retirement savings you’ve worked so hard for, but only if you haven’t withdrawn from the golden pot.
I’d love to hear about your own experiences, these past few years. Have you found yourself trying to stay out of bankruptcy or have you had to file?
