Even before the recession> struck, baby boomer bankruptcy was climbing. More than 42% of all individuals who filed for bankruptcy in 2007 were between the ages of 45 and 64, according to a study by the American Bankruptcy Institute released last month. From 2002 to 2007, the percentage of people filing for bankruptcy between the ages of 55 and 64 grew from 9.2% to 15.2% (the biggest jump for any age group), compared to a decline among those 25 and younger.
The study pointed to several reasons for the increase in boomer bankruptcies, including a jump in significant debt payments among older families, a decline in home values and rise in foreclosure rates.
The problem may only be getting bigger, write John Golmant and James Woods, the authors of the study, citing rising credit card debt and the declining total net worth of the generation.
Boomers filing for bankruptcy face a unique challenge: how to recover quickly and substantially enough to retire on schedule or at all. Older boomers face a particularly tough road back because they have the least time to save.
"In your 60s, it will be much harder to recover," says Mark Zaifman, a registered investment advisor at Spiritus Financial Planning in Petaluna, Calif. I can t sugar coat this. You will probably have to delay retirement for a while.
Still, even for older boomers, retirement after bankruptcy is not impossible, especially with the right austerity program and an income from an additional job.
Boomers who retain some of their net worth are also in a better position. Retirement accounts like 401(k)s and IRAs are protected in bankruptcy, but most other assets are not. A bankruptcy filing almost always wipes out an individual s savings, and in many states, filers may lose their home and other assets, too.
SmartMoney asked a few financial advisers to share their advice on how a boomer filing for bankruptcy can recover in time to retire.
Adjust your ideas about the way you ll live and when you ll stop working. Prepare for a lower standard of living than you may have originally planned for, and consider a part-time job in retirement.
If you're in your 60s, consider delaying retirement for a few more years to generate more savings and contribute to Social Security for a longer period of time to accumulate more benefits credits.
Make and follow a cash-flow plan
Document the amount of money coming into and out of your household each month, and be prepared to change it. This may seem obvious, but many financial advisers say they have myriad clients who aren t sure exactly how much they make, save and spend.
To create a cash-flow plan, Zaifman recommends using a web site like Mint.com, a resource like Quicken or a fee-only financial advisor. For couples, he also advises weekly financial check-ins with their partners to help keep each other's finances on track.
Part of a bankrupt boomer's cash-flow plan will likely require spending cuts. "It is key that they become budget-minded and frugal," says Anita Eisthen, a chartered financial analyst and founder of Cincinnati-based Labrador Investments. "Clip coupons, look in the circulars for stores with the best deals, and things like this."
And expect to keep it up. "They really have to rethink their lifestlye," says Manisha Thakor, a Houston-based CFA and author of "On My Own Two Feet," a financial planning guide for women. "It's not only about the lifestyle they live now but also the standard of living they will have in retirement. These both will probably have to change if they want to retire in a reasonable time frame."
Aim savings at retirement accounts
Gary Gilgen, Director of Financial Planning for Rehmann Financial in Troy, Michigan, advises his clients to contribute as much as they can to their retirement accounts and take advantage of catch-up contributions.
If you are unsure about your needs, consult a fee-only financial advisor and read our primer on retirement planning.
Reexamine your investment strategy
The strategy you used to save for retirement over the last 40 years or so is probably not going to help you now.
Jonathan A. Blumenthal, a certified financial planner and senior vice president at Peak Capital Investment Services, advises boomers to select the "investments that will give them the highest probability for success." The principles remain the old standbys manage risk, diversify your investments and properly allocate your portfolio, Blumenthal says but the numbers governing how much risk you take on have almost certainly shifted on your balance s way down to zero. This tool can help you reassess.
Don't hide your situation
Because many boomers retain the same friends with the same spending habits that they had before bankruptcy, it may be hard to stick to a new, more frugal lifestyle. Thakor recommends letting your friends and family know you ve had some financial difficulty and are working toward cutting back. She also suggests looking into online support groups to reach out to others coping with bankruptcy.