Americans who are 62 or older had an estimated $3.6 trillion in total equity locked up in their homes in the first quarter of 2014, according to the National Reverse Mortgage Lenders Association. A new primer suggests they should start thinking seriously about using it to generate some extra retirement income.
The primer, published by the Center for Retirement Research at Boston College, which sponsors this blog, discusses two ways retirees can use home equity to generate income: by downsizing into a less expensive house or condominium or by taking out a reverse mortgage.
Click here to read the booklet online and learn how these strategies work and how much money each can provide. Their pros and cons are detailed in the graphic below, excerpted from the booklet:
For a growing share of older Americans, housing expenses have become an increasingly large financial burden.
One in three Americans over age 50 were carrying a severe or moderate housing cost burden in 2012, up from one in four in 2000, according to a new study by Harvard’s Joint Center for Housing Studies and AARP. The Center defined a severe burden as housing costs that consume more than half of household income; a moderate housing burden takes between 30 percent and 50 percent of income.
The Center’s report, “Housing America’s Older Adults – Meeting the Needs of An Aging Population,” warns that the nation is unprepared for both the financial and non-financial housing challenges that will accompany the coming explosion in the elderly population. Aging baby boomers will require better access to public transit, handicap access, assisted living facilities and other special services and amenities, and many will need subsidized housing.
Housing is often an older person’s largest single expense. And because housing costs are largely fixed (think mortgage payment, taxes, insurance, upkeep and utilities), they can become a growing burden for people as they age and become more vulnerable to reductions in income. Incomes often decline toward the end of their working years and decline again when they enter retirement. Pensions and Social Security benefits fall again when one spouse dies.
In case anyone has forgotten, buying a home can be damaging to your financial health.
But prospective first-time homeowners may want to take advantage of still-low mortgage interest rates and the recent, slower increases in house prices. Homebuyer classes can provide an excellent crash course in the mysteries of mortgages, maintenance, taxes, and risks – information that can help preclude the kind of mistakes made during the subprime mortgage crisis.
There’s a tool on the website of the federal government’s Consumer Financial Protection Bureau (CFPB) to search for first-time homebuyer classes and housing counselors. Enter your desired zip code here to find classes and counselors nearby.
The agencies listed appear to be mostly non-profits and were approved by the U.S. Department of Housing and Urban Development. It’s wise to do some research on a specific agency to find out where the non-profit’s underlying funding comes from and what services it offers.
So, is now a good time to buy a house? Conventional wisdom says this depends on how long the buyer intends to live in the house – the longer the better to cover the high upfront costs of buying and moving and to ride out price fluctuations in the housing market. …Learn More
Retirees can use the equity sitting in their homes to pay for their daily expenses, out-of-pocket medical bills or nursing care, especially toward the end of their lives.
Cash-strapped older retirees can access that equity by taking out reverse mortgages or home equity loans or by downsizing to less expensive homes or condominiums.
But one in four Medicare recipients has less than $12,250 in home equity, according to a new report by the Kaiser Family Foundation, a healthcare non-profit.
Kaiser’s calculations also show that the distribution of home equity among older Americans is – like the distribution of income and financial assets – top heavy. While 5 percent of Medicare beneficiaries in 2013 had more than $398,500 in home equity, half have less than $66,700.
According to Kaiser’s projections, that gap will widen in the future. By 2030, those whose home equity places them in the top 5 percent will see that equity grow more than 40 percent, but it will rise less than 10 percent for those with mid-level – or median – amounts of equity.
The analysis was part of a study to examine the ability of older Americans to absorb rising out-of-pocket retiree medical costs and increasing Medicare premiums. This blog also reported the study’s similarly grim findings about the meager financial savings held by many retirees to cover their health care costs.Learn More
Less than $11,300 – that’s how little savings one-quarter of all Medicare beneficiaries have in their 401(k)s, IRAs, and other financial accounts.
This grim statistic comes out of a report by the Kaiser Family Foundation, a health care and policy non-profit. Kaiser’s goal was to gauge whether older Americans will be able to absorb rising Medicare premiums, co-pays, deductibles and related costs.
“Most people on Medicare are of modest means with relatively low incomes, low savings and low home equity,” concluded Gretchen Jacobson, the foundation’s associate director of the Medicare policy program and lead author of the report.
When retirees’ incomes can’t cover their out-of-pocket costs, they need money in the bank to pay for care. But half of all Medicare beneficiaries have annual incomes below $23,500 and have less than $61,400 in the bank – less than the cost of a year in a nursing home – Kaiser said.
The foundation’s report also projects beneficiary incomes and wealth over the next two decades, as baby boomers age: much of the growth in incomes and wealth will be skewed toward individuals in the higher income and wealth brackets.
This report should “raise questions about the extent to which the next generation of Medicare beneficiaries will be able to bear a larger share of costs,” Kaiser said.Learn More
About 15 percent of Americans age 65 and over are poor, according to the federal government’s alternative definition of poverty, known as the Supplemental Poverty Measure, a yardstick that takes into account seniors’ out-of-pocket medical expenses, as well as income and tax effects not included in the standard measure of poverty.
A compelling new video profiles poor older Americans who live in Baltimore, rural West Virginia, and Los Angeles. In the video, produced by the Kaiser Family Foundation, a non-profit research and policy organization focused on health care, the seniors identify rising rents and medical expenses as major explanations of financial hardship, which can mean lacking enough money for food.
Squared Away also has interviewed seniors living in a Boston housing complex for low-income seniors. To hear their stories, click here. Learn More
Older Americans who are in debt are choosing to delay their retirement, researchers conclude in a new working paper.
In earlier findings released last summer, the researchers, Barbara Butrica and Nadia Karamcheva of the Urban Institute, documented the growing prevalence of borrowing since the late 1990s among adults ages 62 through 69. Median debt levels among those who owe also surged from $19,000 to $32,100, adjusted for inflation – and debts as a share of their assets increased.
Now comes the rest of the story. When the researchers controlled for health, financial assets, home values, and other forms of wealth, as well as spouses’ earnings and other factors that play into decisions about retiring, they found that individuals with debt, especially mortgages, behave differently than those who are debt-free.
Here are their main findings:
Nearly half of all people in their 60s with debts continue to work, compared with only one-third of those who have no debt. …