September 24, 2013
Nearly Retired, Lugging a Mortgage
Traditionally, the picture-perfect retirement included a paid-off house. But the Me Generation isn’t sticking to the script.
Snapshots of three generations of U.S. households on the cusp of retirement – people born in the Depression, at the beginning of World War II, and after the war – show that more of the most recent generation, the baby boomers, are still carrying mortgages as they head into their retirement years.
About 40 percent of households who were between the ages of 56 and 61 in 1992 – the Depression-era parents of baby boomers – held mortgages at that age. This share had increased to 48 percent by 2008, as the front wave of baby boomers were reaching their late 50s and early 60s
“The current generation has bought larger, more expensive homes, and they arrive at retirement with more mortgage debt,” concluded George Washington University business professor Annamaria Lusardi, who presented the findings of her study with Olivia Mitchell of the Wharton School during an August meeting of the Retirement Research Consortium.
This doesn’t necessarily create financial problems if the borrower plans to work longer or has sufficient assets to offset his mortgage debt. But the researchers’ analysis also indicates some financial distress in this age group: 24 percent of households had less than $25,000 in savings in 2008, compared with 18 percent in 1992.
A different survey that Lusardi and Mitchell analyzed showed that nearly 40 percent of individuals between ages 56 and 61 admitted to having “too much debt right now.”
Many also purchased properties during the housing market boom, paying smaller down payments than they had in the past. After the market collapsed, 17 percent of older households were left with houses worth less than what they owed on their home loans.
With retirement looming, people approaching retirement age “should be at the peak of their wealth accumulation” Lusardi said. Instead, she said, “they will have to deal with debt and debt management way into their retirement.”
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed do not represent the opinions or policy of SSA or any agency of the federal government.