Posts Tagged "homeownership"

Last will and testament

Retirees Intent on Leaving Homes to Kids

Every year, older homeowners leave billions of dollars worth of the wealth locked up in their houses to their adult children.

This is a paradox if one considers that home equity is one of retirees’ primary assets and could be a crucial source of income for people who are “house rich and income poor.” Retirement experts searching for an explanation have long wondered whether the deceased had intended to leave the house to family or simply died before they were able to cash in on the equity and spend it.

A new study has an answer: retirees have every intention of letting family members inherit their homes. The people in the study who expressed a stronger desire to leave an inheritance of at least $10,000 were much less likely to sell their homes before they died – with the intention that the house would be part, if not all, of that inheritance.

The foundation for this study is a precise estimate of the housing decisions being made in the final two years of life from a survey of older Americans. The researchers counted as many people as possible, including the deceased – their final living status came from interviews with next of kin – as well as people who continued to be homeowners after going into hospice or a nursing home.

The homeownership rate in the older population peaks around age 70 and starts falling precipitously after 80. But when the elderly in the study died, about half of them still owned their homes, while the other half had sold them and moved into rental housing.

At younger ages, the retirees had been asked to estimate the probability, from 0 (no chance) to 100 (definitely), that they would leave a financial inheritance. Based on this information, the researchers found that those who had said they had a high probability of leaving an inheritance remained in their homes.

There is also a financial advantage to the owner of not selling the house to avoid the capital gains tax, especially if the price appreciated dramatically during their lifetimes. The researchers didn’t account for this incentive in their analysis.

But they did find that the desire to leave a bequest is so compelling that parents held on to their homes even after predicting they might need to pay for nursing home care within a few years. …Learn More

Mortgage Paid Off

Readers See Pros, Cons to Paid-off Mortgage

Baby boomers love to discuss this age-old question: Should I pay off the mortgage before retiring?

Our blog readers fell into two camps in their comments on a recent article.

Some made an emotional argument – that a mortgage-free retirement makes them feel secure. The other camp argued that paying off the mortgage does not make financial sense.

The article, “Boomers Repairing their Mortgage Finances,” described research showing that boomers have sharply cut what they owe on their mortgages by paying extra in the years since the housing market bust. People naturally pay more of this debt as they age. But the boomers’ rapid payoffs partly explain why 40 percent to 50 percent of Americans in their 60s no longer have a mortgage, wiping out what is often a retiree’s largest single expense.

Despite the recent payoffs, boomers still trail their parents. Roughly 80 percent of the homeowners born in the 1930s had paid off their home loans by the same age, according to Jason Fichtner’s analysis for the Center for Financial Security at the University of Wisconsin.

As for whether to pay off the mortgage, many boomers don’t have that luxury. After the wave of foreclosures a decade ago, Fichtner found, the homeownership rate for 60-something boomers quickly slid more than 10 percentage points, to around 65 percent. The U.S. homeownership rate has increased in recent years but is still below the pre-recession peak.

The financial argument against paying off the mortgage was made in a blog comment by Tony Webb, a research economist at The New School. “At current interest rates and anticipated inflation rates, mortgage borrowing is almost free,” he wrote.

“All but the most risk-averse should load up on money while it’s on sale,” he said. [Full disclosure: Webb used to work at the Center for Retirement Research, which sponsors this blog.]

Another reader, Beth, said paying off the mortgage “is one cornerstone of a worry-free retirement.” However, she knows “several financially savvy people who for various valid reasons have not paid off their homes.” …Learn More