Research

February 17, 2022

Paying off the mortgage frees up a lot of money for other things. The homeowners in one study splurged on big-ticket items.

Older homeowners, however, are adding another priority: medications.

After a mortgage payoff, workers and retirees ages 50 to 64 spent 50 percent more on prescription drugs in a comparison with households who had no major changes in their monthly housing costs, according to a new study by Harvard’s Joint Center for Housing Studies and funded by the U.S Social Security Administration.

The mortgage is typically a homeowner’s largest monthly expense. If medication spending rises when this big bill is eliminated, it supports the argument that some aging homeowners who are still carrying a mortgage may be choosing housing over necessary medical care.

This research is particularly relevant at a time older Americans are entering retirement with more debt. In 2016, four in 10 retirees had a mortgage – double the share in the late 1980s.

Not surprisingly, the researchers found some indication that lower-income workers and early retirees benefited more from eliminating their monthly payments. They have difficulty paying even for essential expenses, and the increase in their prescription purchases after paying off the home loan appeared to be larger than for higher-income groups with fewer constraints.

The researchers split the homeowners into two age groups – under and over 65. While homeowners under 65 sharply increased their drug spending after the mortgage payments ended, the Medicare beneficiaries did not.

The level spending after Medicare eligibility indicates that the program relieves some of the pressure on the family budget, the researchers said. Medicare also provides an average $5,000 annually to subsidize low-income retirees’ medications under the Low Income Subsidy program.

But for older homeowners who are too young to get Medicare but are still paying a mortgage, the study “raises serious concerns for health care quality and the costs to treat poorly managed conditions,” the researchers said.

To read this study, authored by Christopher Herbert, Jennifer Molinsky, Samara Scheckler, and Kacie Dragan, see “Older Adult Out-of-Pocket Pharmaceutical Spending after Home Mortgage Payoff.”

A blog post last year featured a similar study – this one about the older Americans’ adherence to medications after …Learn More