10 Years Later: How the Financial Crisis Affected Seniors

Between October 2007 and November 2008 the Dow Jones lost more than 40%, and investors posted losses of more than $50 trillion globally. In a December 2008 report, AARP said, “The economic downturn underway is likely to be the worst since World War II. Its impact on older Americans could be devastating.”

A March 2010 report from the Population Reference Bureau (PRB) referencing data collected by the American Life Panel (ALP), the Health and Retirement Study (HRS) and others said, “Mounting evidence indicates that the recession has erased decades of improvements in material well-being for the most vulnerable groups—children, the elderly, and the poor.” 

Contrast those findings with this conclusion from a PRB report, published in November 2015: “The Great Recession (2007 to 2009) had wide-ranging economic effects on Americans of all ages, but older people were relatively insulated from the prolonged economic downturn.”

This disparity invites an examination of what impact the crisis had on seniors and why. 

Variances Within a Demographic

The AARP report made clear that within the senior population, no one-size-fits-all financial reality exists. During the crisis, fewer older people were expected to lose their jobs, thanks in part to the fact that a small percentage of that population had jobs in the first place.

For those who did find themselves unemployed, the consequences were expected to be serious. Those with defined-benefit plans were generally considered to be better off than those with defined-contribution plans, though there was a real fear that some defined-benefit plans would be frozen or fail.

People who had to supplement Social Security with 401(k) or IRA monies were among those expected to be the most adversely affected. Some savers who had not moved out of equities into bonds had already seen large losses. Seniors not yet old enough for Medicare were at risk of losing their health insurance. People who owned their homes outright were expected to fare better than those who still had mortgages, especially those who saw their mortgages go underwater. 

The End of the Crisis

The 2010 PRB report showed that more than 70% of individuals age 40 and older felt the recession had affected them. Between November 2008 and January 2010, about 30% of those households said they had experienced being more than two months behind on their mortgage, negative home equity, foreclosure, or unemployment.

Older citizens (like all demographic groups) spent less, reduced savings, and cut back on medical care during this period. To slow retirement savings losses, more than 55% of workers aged 50 to 64 expected to be working full time when they reached age 65. The number of unemployed seniors more than doubled between November 2007 and August 2009.

Impact on Wealth

Despite unemployment, lower home values, and a general decline in retirement savings accounts, poverty rates for those with access to Social Security benefits remained unchanged, according to the 2015 PRB report. Older people had more wealth to lose.

From 2007 to 2011, the median net worth among adults aged 65 and older declined $64,0121, compared to $72,380 for those 55 to 64, $60,295 for workers between 35 and 54, and $2,094 for those under age 35.

On the other hand, older adults experienced smaller percentage declines in wealth during this period, with those 65 and older seeing their net worth decline by just 25%, while those 55 to 64 experienced a 33% decline, and those between 35 and 54 endured a 61% drop. 

Ultimately, the impact of the recession on the wealth of older adults was modest. After considering the future value of Social Security and defined-benefit pensions, Baby Boomers in their 50s had a 3.6% decline in wealth between 2006 and 2012.

By 2012, older adults overall had recovered most of the wealth lost during the Great Recession. But that depended on how they responded to the initial declines. According to Fidelity, as of June 2017 people who remained invested from 2007 on saw an average growth of about 240%, while those who sold their stocks in 2008 or early 2009 and jumped back into the market later had growth of only 157%.

Impact on Home Values and Spending

By 2010, 15% of homeowners under 50 held underwater mortgages. However, only 7% of those aged 50 to 64 had homes with negative equity, and just 4% of mortgages owned by people 65 or older were “upside down.”

Americans lost trillions of dollars in home equity during the financial crisis. But unless they were trying to sell a home during that period, older citizens were largely spared the worst immediate effects of this loss due to low mortgage balances or mortgages that had been paid off before the recession began.

That doesn’t mean they were untouched. During the Great Recession, 33% of people aged 55 to 64 reduced spending, including cutting back on healthcare, food, and other expenses. By contrast, only 17% of those 75 and older cut back on their spending. In fact, older seniors were more likely to increase spending, a sign that they were somewhat insulated financially.

Some older Americans who did cut back, spent time (cooking at home) instead of money (eating out). One aspect of spending that did show up was the belief among older adults that they would have less money to pass along to their children—about 20% less, according to one study.

Impact on Employment and Retirement

While unemployment increased sharply during the recession, many Baby Boomers were able to stay on the job, softening the overall numbers. The overall age of the workforce did increase during and just after the recession. The number of Americans 65 and older still working increased by 2.2% between 2010 and 2013, while the number of workers aged 18 to 29 decreased by 2.7%, according to Gallup.

The reason for the uptick in older workers was likely due to seniors who stayed in the workforce or re-entered it to rebuild their retirement savings. Other factors included the need to support younger family members who had lost jobs or homes.

Seniors close to retirement age at the end of the recession who elected to remain in the workforce did so for an additional four years on average. The percentage of wealth lost during the recession did not appear to be a factor. Older workers had been staying in the workforce longer for several years before the recession.

Impact on Health

Economic and physical health are linked. Some older people who saw a decrease in wealth during the recession put off doctor visits, cut back on medications, and experienced more stress, which in and of itself is a health factor. One study found that people aged 45 to 66 who lose their jobs during a recession have a greater risk of dying than those who lose their jobs during a non-recessionary period.

The Bankruptcy Factor

According to the Institute for Financial Literacy (IFL), 21.8% of bankruptcies in 2006 were filed by people aged 55 and older. By 2009 it was up to 25%. Historically, when older people file for bankruptcy, medical debt is the main reason.

With the financial crisis, lost income, unemployment, and depleted retirement accounts also were factors. The increase in bankruptcy among older Americans continues to the present day, with a recent study indicating that the rate of bankruptcy among those 65 and older is five times what it was between 1991 and 2018.

Not all of this can be blamed on the Great Recession. Research suggests that a 30-year shift in financial risk from government and employers to individuals—mostly through the replacement of defined-benefit pensions with defined-contribution plans, such as 401(k)s—is a big part of the problem and more out-of-pocket spending on healthcare. 

The Bottom Line

There are around 52.4 million Americans over age 65. All of them went through the Great Recession. While no two stories are the same, there are some common themes:

• Most saw a loss in the value of their retirement savings and home values, but by 2012 most had recovered nearly all of that.
• Cutbacks in spending were modest, with older seniors actually spending more.
• Decisions to remain in the workforce and when to retire were largely unaffected by the amount of wealth lost.
• Health does seem to take a hit during economic downturns, primarily due to a tendency to cut back on doctor visits and medication. That said, as of 2018, 97% of persons age 75 and older reported that they had a usual place to go for medical care and only 3% of people age 65 and older said that they failed to obtain needed medical care during the previous 12 months due to cost.
• Although bankruptcy has increased among seniors since the financial crisis, it may be tied to an increase in financial risk taken on by individuals rather than to the recession itself.

By conservative estimates, in 2018, nearly 1 in 10 people age 65 and older (9.7% or 5.1 million) lived below the poverty level. Many of the other 90% will die with more wealth than they had when they left the workforce. In addition, from 2017 to 2018, the real median income (after adjusting for inflation) of all households headed by older people increased by 3.3%. In 2019, 10.7 million (20.2%) Americans age 65 and older were in the labor force.