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Insights into the Financial Experiences of Older Adults: A Forum Briefing Paper

Financial Stress and Well-Being of Older Adults

This section of the report describes the incidence and main sources of financial stress among older adults.

Major Financial Stress

More than one-third (36 percent) of respondents in the survey say they have experienced "major financial stress" within the last three years, a proportion that is even higher among middle-aged adults. Major financial stress was reported by 45 percent of respondents in their 40s, 41 percent of those in their 50s, 31 percent of those in their 60s, and one in five (19 percent) of those age 70 and above.

Several surveys have tried to gauge prevailing levels of financial stress by age. For example, research by the Personal Finance Employee Education Foundation also found that financial stress levels tend to decline with age, with "high" or "overwhelming" stress cited by roughly one-quarter of those age 30 to 44, one-fifth of 45- to 54-year-olds, and about 11 percent of people age 55 to 64.53 Looking at a series of indicators of financial stress, the FINRA Financial Capability Study similarly found higher levels of stress among adults in mid-life as compared to older adults.54 For example, adults age 35 to 54 were about twice as likely as those age 55 and older both to take a loan from a retirement account (14 percent vs. 7 percent) and to be late more than once with a mortgage payment in the last two years (15 percent vs. 8 percent). The 35-to-54 age group also was more likely to occasionally overdraw on their checking accounts (25 percent vs. 14 percent).55

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Sources of Financial Stress

Financial stress stems from a number of sources, most often cash flow-related and health-related. Respondents in the survey reporting financial stress cited cash flow issues such as: "losing a job or having work hours and/or income reduced" (51 percent), unpaid taxes (13 percent), filing for bankruptcy (7 percent), and receiving a foreclosure notice on their homes (6 percent). A considerable number identified "having a significant health issue" as a cause of their financial stress (30 percent). Some respondents indicated their financial stress is due to "getting separated or divorced or losing a spouse/partner" (8 percent). More than one in five (22 percent) also reported "other" causes of stress, many citing the general state of the economy.

Figure 10. More than one-third of respondents report major financial stress in the last three years, most often due to job loss or reduced income or to health-related issues
Percent of survey respondents reporting each source of major financial stress in the last three years, by age

Accessible Version

Note: See Table B.75 in Appendix B; number of respondents was 651.

Multiple sources of financial stress are common. One-quarter of respondents (25 percent) with financial stress indicated their stress arises from two or more sources, including 8 percent who cited three or more sources. For those who reported more than one source of stress, unemployment and health was the most common combination of stress factors.

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Unemployment and Financial Stress

Unemployment is more often cited by respondents in their 40s and 50s as a source of financial stress; however, this may largely be a function of the greater labor force participation in these age groups. Unemployment can be particularly stressful for those closest to retirement age who have been shown to endure long spells of employment and reduced income even if they are able to get re-hired. In June 2010, when unemployment was near its peak in the recession, the average period of unemployment for job seekers age 55 and older was 40.6 weeks, compared to 31.6 weeks for younger job seekers.56 An Urban Institute study found that, once re-hired, men age 62 and older earned 36 percent less per hour in the new job than their previous job, and men age 50 to 61 earned 20 percent less than previously.57 This compares to a 4 percent wage loss for reemployed laid-off men age 35 to 49. Older women also took longer to get re-hired and faced larger losses on their earnings than did younger women. Women age 62 and older earned 16 percent less than previously and those age 50 to 61 earned 21 percent less, compared to 10 percent less for women age 35 to 49.

The impact of long spells of unemployment and reduced wages is a strain on household resources. In focus groups of older unemployed workers conducted as part of a study by the GAO, participants reported they relied on unemployment insurance and had taken a variety of steps to meet short-term needs, such as increasing credit card debt, borrowing money from family or friends, deferring needed medical care, or selling possessions. As unemployment persisted, they drew down retirement savings or tapped into their home equity to cover living expenses.58

In addition, as the GAO study also noted, long-term unemployment also takes a toll on an older worker's future retirement income in several ways. Workers who borrow money from retirement accounts incur taxes and withdrawal penalties. Even those eligible to withdraw run the risk of being unable to rebuild their savings when they take their money out unexpectedly early. Meanwhile, they have stopped saving and making contributions for their retirement just at the time they need to most. Finally, long-term unemployment can motivate older workers to claim early Social Security retirement benefits, which will result in lower monthly benefits for workers and their families for the rest of their lives.

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Health-Related Financial Stress

Health-related financial stress occurs broadly across age groups. While one-third of those in their 50s (32 percent) and those in their 60s (36 percent) with financial stress cited health as a reason, one-quarter (25 percent) of those in their 40s did so as well. More than one-quarter of respondents (28 percent) reported that, in the last three years, they had paid a medical expense greater than $1,000 that was not covered by insurance, a share consistent across all age groups.

Medical expenses also may result in indebtedness for some older adults. One in eight (12 percent) respondents said they have had to carry a balance on their credit card in the last three years because of a medical expense. This is more likely to be the case for respondents in their 40s and 50s than for older respondents and might partly be explained by the availability of Medicare support for those over the age of 65. The FINRA study similarly found that 30 percent of adults age 35 to 54 reported having unpaid medical bills, compared to 17 percent in the 55-and-older age group (some of whom are not yet eligible for Medicare).59

Health issues may lead, not only to an inability to work and increased household expenditures but, as research suggests, to recurring financial challenges between health issues and financial circumstances.60 Unemployment and job insecurity may result in the loss of health insurance. Unable to afford the cost of care, some people will forego medical care or prescribed medications. Physical and mental health may be further affected by lowered income and living standards.

Some evidence of this interplay between health and financial stress was evident in the survey. Self-reported information on health condition was available in the RAND ALP for 1,812 of the 1,821 survey respondents. Nearly one-half (45 percent) of respondents who said they were in "fair" or "poor" health indicated that they have experienced major financial stress recently. This is compared to about one-third (32 percent) of those who said they are in "excellent" or "very good" health.

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Meeting Unexpected Expenses

The inability to meet a large unanticipated expense also may signal financial stress. When asked about meeting unexpected expenses of $1,000, respondents in the Older Adult Survey identified a variety of sources they might use to cover the cost. About 44 percent would use only methods that suggest they have resources readily available to meet an unanticipated expense. These methods include taking money from a checking or savings account or paying in cash. Also among these methods is putting the amount on their credit card and paying it in full at the end of the month. Another 40 percent did not select these methods among their options. Some 16 percent indicate they may use one of these options but also cited other methods they might use, including: borrowing from a friend or family member, making partial payments on their credit cards, using another type of installment debt, or spending less on other items.

In terms of age differences, the oldest adults were more likely than middle-aged adults to say they would take the $1,000 out of a savings or checking account or put the $1,000 on a credit card and pay in full at the end of the month. More than one-half (53 percent) of respondents in their 60s and six in 10 (60 percent) of those age 70 and older would pay upfront or in full, as compared to only about one-third of those in their 40s and 50s (36 percent, respectively). Similarly, in a question worded slightly differently, the 2012 FINRA Financial Capability Survey asked respondents if they would be able to come up with $2,000 if an unexpected need arose in the next month. That survey found that nearly three-quarters (73 percent) of adults age 55 and older said they "probably" or "certainly could," compared to 58 percent of 35- to 54-year-olds and only about one-half (51 percent) of 18- to 34-year-olds.61

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Seeking Advice for Financial Stress

Less than one-half (48 percent) of respondents in the Older Adult Survey with financial stress have sought advice in dealing with it. Of the roughly one-third of respondents (36 percent) reporting stress, slightly less than one-half (48 percent) say they asked someone for advice on how to manage their situation. Asking for assistance does not appear to vary significantly by age.

Across all age cohorts, those who sought advice in dealing with financial stress turned to family (57 percent) and friends (34 percent). Fewer respondents sought help from professionals. About one in five consulted a financial advisor (23 percent) or attorney (19 percent) and one in 10 asked their banker (11 percent), a "community group/counseling agency" (10 percent), or sought help from an "other" source (10 percent), the most frequently cited of these being an employer or a government agency. Advice about medical expenses was treated somewhat differently. Of those who had medical expenses greater than $1,000 not covered by insurance, some 70 percent say they sought payment advice from the medical provider directly.

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Impact of Financial Stress on Life Satisfaction

Despite living in economically challenging times, a majority of respondents in the Older Adult Survey had reported in an earlier RAND survey they are "completely" or "very" satisfied with life. Generally, life satisfaction increases with age: seven in 10 (70 percent) of those age 70 and older are "completely" or "very" satisfied, but only one-half (53 percent) of both those in their 40s and 50s report this level of life satisfaction. Not surprisingly, lower levels of life satisfaction correspond to greater levels of financial stress. For example, almost six in 10 (58 percent) of those who say they are "not very" satisfied with life also report having major financial stress. Only about one-quarter (27 percent) of those who say they are "very satisfied" with life have financial stress.

In a related vein, the 2012 FINRA study found that "satisfaction with personal finances" was highest among those age 55 and older (33 percent) followed by those in the 18- to 34-year-old group (23 percent). Fewer than one in five (18 percent) 35- to 54-year-olds expressed satisfaction with their personal finances. This group, the study notes, is the one most likely to have financially dependent children.62

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53. Personal Finance Employee Education Foundation (2011), p.6.   Return to text

54. FINRA Investor Education Foundation (2013), p. 9.  Return to text

55. Comparable figures for the youngest adults, 18 to 34 years old, were even higher: 22 percent have taken a loan from their retirement account, 16 percent have been late with mortgage payments more than once, and 28 percent have overdrawn their checking accounts.   Return to text

56. Heidkamp, Corre, and Van Horn (2011), p. 8.  Return to text

57. Johnson and Mommaerts (2011), pp. 22-23.   Return to text

58. U.S. Government Accountability Office (2012), p. 28.   Return to text

59. FINRA Investor Education Foundation (2013), p. 10.  Return to text

60. Robert Wood Johnson Foundation (2013).  Return to text

61. FINRA Investor Education Foundation (2013), p. 11.  Return to text

62. FINRA Investor Education Foundation (2013), p. 8.  Return to text

Last update: July 30, 2013

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