Those golden years have lost their glow

Decades of saving and hard work as a teacher earned Beverly Welsh what she thought would be a comfortable retirement.

She bought a townhouse in Las Vegas to be near her mother, but the longtime South Pasadena resident continued to spend time in her beloved Southern California. She spoiled her five cats. She took acting classes, landing small parts in a few low-budget films.

Then the bottom fell out of the real estate market and stocks cratered, wiping out a third of her $750,000 net worth over the last two years. Tight on cash, the 76-year-old retiree says she may seek work as a substitute teacher to supplement her dwindling investment income.

“It’s unbelievable how quickly it happened,” Welsh said. “I’m not sleeping well.”

U.S. economic turmoil is damaging the nest eggs of seniors such as Welsh. Swift declines in the value of their biggest holdings -- real estate, stocks and mutual funds -- have sent many of them scrambling to adjust to the greatest shock the U.S. financial system has experienced since the Depression.

There’s no doubt seniors are much better off today than they were in the 1930s. Most Americans older than 65 are covered by Social Security and Medicare. And they are the nation’s wealthiest citizens as measured by their net worth, according to the Census Bureau. Still, the recent hits have been particularly tough on retirees, many of whom rely on investment income and, increasingly, home equity to meet current expenses. And time isn’t on their side: They don’t have decades to wait for the markets to rebound, unlike younger workers.

Shrinking investment returns are forcing many pensioners to trim household expenses. Others are postponing retirement or getting jobs to make ends meet. Last month, 16.4% of Americans 65 or over were in the workforce, according to the Bureau of Labor Statistics. That’s the highest percentage in 38 years.

A soft housing market has some retirees stuck in properties they had counted on selling -- delaying plans of moving to warmer climates or areas with a lower cost of living. For others it’s just the opposite: They’re facing eviction from homes they never dreamed of leaving.

Three refinancings have left Dale Campbell and his wife owing $485,000 -- more than their Whittier home is worth. The interest rate on their mortgage is due to reset in November, and the payments will more than double to $3,800 a month. The 77-year-old retired truck driver figures it’s just a matter of time before the bank sends the couple packing.

“We don’t want to leave here, but we can’t afford the payments,” said Campbell, who spent the proceeds from the refinancings on home improvements.

The Campbells aren’t alone. Homeowners ages 50 and over account for an estimated 28% of all delinquencies and foreclosures in the current crisis, according to a report released last week by AARP, the nation’s leading senior citizens lobby. That translates into 684,000 older people who have lost their homes or are in danger of losing them. Many experts believe there are a lot more on the way.

The bad news doesn’t end there. A separate AARP study found that, over the last decade and a half, Americans 55 and older have experienced a sharper increase in bankruptcy filings than any other age group, accounting for nearly a quarter of all filers last year.

Los Angeles bankruptcy attorney Scott Bovitz has noticed the graying of his clientele.

“In prior years, it was rare for me to hear from a grandma,” he said. “Now we’re talking to people 55 and older every day.”

Experts point to myriad factors that have compelled seniors to rack up credit card debt and to tap their home equity in recent years. A shrinking medical safety net has left millions of older Americans vulnerable to soaring healthcare costs.

Even those covered by Medicare can incur enormous bills for prescription drugs. Others are caring for aging parents or need money for urgent home repairs. Some were suckered by aggressive mortgage brokers into taking on debt they didn’t need.

But many succumbed to the same temptations that led American adults of all ages to get in over their heads during the real estate frenzy -- proof that age doesn’t necessarily equate to wisdom. Some pulled out cash for vacations, cars and Jacuzzis. Still others saw a once-in-a-lifetime opportunity to buy investment property to flip for a quick profit.

What they didn’t count on was a collapse in home values that would leave them saddled with debt and unable to sell, said Richard Pittman, a credit counselor with Los Angeles-based By Design Financial Solutions.

“They believed their realtor friends, that if one house is good, then two is even better,” said Pittman. “This is supposed to be your retirement account. And suddenly you’re upside down and about to lose everything.”

But even retirees who didn’t gamble wildly are getting slammed by fallout from the real estate and stock market downturns.

When engineer Dave Knight retired from aerospace giant TRW eight years ago, his finances looked solid. Between Social Security and a company annuity, he and his wife were pulling down $50,000 a year in guaranteed retirement income. He also had $250,000 in a 401(k), most of which he says was in conservative investments.

What Knight didn’t count on was the stocks and mutual funds in his 401(k) going south and living expenses rising quickly. The couple took out a home equity loan on top of the mortgage on their house in Beaumont, Calif., to bridge their spending gap. Then housing values started tumbling.

Now 70, Knight said debt on the home has ballooned to $320,000 -- which is about what the house is worth. Another equity loan is out of the question, and his 401(k) continues to take a beating. The couple are cutting expenses, and Knight is looking to substitute teach at the local high school for $100 a day.

“We keep thinking this has got to stop at some point and that houses will start selling again and we’ll get some equity back,” he said. “You keep thinking that all this is temporary, but things keep falling.”

Welsh, the former teacher, started saving feverishly two decades ago when she came to a frightening conclusion: She had $16,000 dollars to her name.

“I said, ‘Beverly, you’re going to end up a bag lady,’ ” said the divorced mother of three.

So she started educating herself about stocks and mutual funds, building such a tidy portfolio that friends looked to her for investing advice.

Which makes her current predicament all the more devastating.

Welsh figures she’ll never be able to afford an upscale retirement community in Santa Barbara that she had been dreaming about for years. It was almost within reach until the latest downturn.

“I saved and scrimped . . . so I could do what I really wanted in retirement,” she said. “It really kills me.”

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marla.dickerson@latimes.com