April 25, 2017

Long-term Care Insurance Goes Uptown

Is long-term care insurance a luxury product?

Today, most policies covering home care and assisted living and nursing care facilities for the elderly are purchased by people with relatively high earnings, according to a new survey.

Long-term care used to be insurance that the middle class would buy – either individually or through an employer, union, or affinity group – when it was more affordable. But the market, which has contracted dramatically, also seems to be shifting, according to retirement experts and new data from LifePlans, a long-term care research firm.

In LifePlans’ survey, 82 percent of the people who purchased long-term care policies in 2015 earned more than $50,000 per year. In comparison, only half of the general older population surveyed separately by LifePlans falls into this income bracket. An Urban Institute study supports this too, finding that the market is dominated by households with more than $500,000 in net wealth.

Eileen J. Tell, who consults on aging and long-term care issues, said the slant toward the higher end reflects the fact that the coverage being sold is more comprehensive – and more costly. Most policies purchased now cover all levels of care, from home care to assisted living and long-term care facilities. This reflects a desire for people to age in their homes, Tell said.  Back in 1995, just two out of three policies had this comprehensive coverage. Another feature that’s more common – and costs more – is inflation protection. …Learn More

April 6, 2017

Retirees Don’t Touch Home Equity

Remarkably, middle-class Americans have at least as much money tied up in their homes as they have in all their retirement plans, bank accounts, and other financial assets combined.

A hefty share of older U.S. homeowners are even better off: 41 percent between ages 65-74, and 63 percent over 74, have paid off their mortgages and own their homes free and clear.

But only one in five retirees would be willing to use their home equity to generate income in a new survey by the National Council on Aging (NCOA). This reluctance seems to be on a collision course with financial reality for working baby boomers, when so many are at risk that they won’t be able to maintain their living standards when they retire.

Retirees can get at their home equity to improve their finances a couple of ways.  One is to sell, say, the three-bedroom family home on Long Island for a pretty penny and buy a condo on Long Island or a cheaper house in Florida.  Yet only a tiny sliver of older Americans actually downsize to reduce their living expenses, according to a new report by the Center for Retirement Research at Boston College, “Is Home Equity an Underutilized Retirement Asset?”

Another avenue is available to people over 62 who don’t want to move: a reverse mortgage. While these loans against home equity are not for everybody, they’re one option if retirees want to pay off the original mortgage or withdraw funds when they’re needed. But only about 58,000 homeowners took out federally insured Home Equity Conversation Mortgage (HECMs) in 2015, according to the U.S. Department of Housing and Urban Development.

The NCOA’s survey, which was funded by Reverse Mortgage Funding, a lender, uncovered one reason for the lack of interest: retirees are not clear about how reverse mortgages work and how they differ from a standard home equity line of credit. …Learn More

April 4, 2017

Why Parents’ Home is the Millennial Crib

A couple years ago, Daniel Cooper noticed something at the commuter rail station near his home in suburban Boston.   A lot of parents were dropping off their adult children every morning to catch the train into the city.

This fit with something he’d been thinking about as a Federal Reserve senior economist and policy adviser interested in macroeconomic issues like the housing market.  Are millennials living with their parents longer than previous generations?  And, if so, why?

His suspicion was confirmed in recent research with his colleague at the Boston Federal Reserve, María Luengo-Prado. They found that, on average, 16 percent of baby boomers born in the late 1950s and early 1960s lived with their parents when they were between 23 and 33 years old. That jumps to 23 percent of the millennial generation born in the 1980s.  These young adults are also more likely to return home after living independently for a spell.

The economists landed on two primary explanations for the big shift. One is that young adults today earn less relative to rents in their area. Second, higher state unemployment rates impact millennials more. In short, young adults often live with their parents for the simple reason they can’t afford to live on their own. …Learn More

March 28, 2017

Black America’s New Retirement Issue

The retirement issues facing black Americans can’t necessarily be lumped together for many reasons – there are high- and low-income blacks, and there are recent immigrants as well as longstanding families.  A similar problem arises when treating the U.S. Hispanic-American population or the Asian-American population as a homogenous group.

Having acknowledged this, however, some recent studies have highlighted the financial challenges particular to each group.  For Hispanic-Americans, a major issue is that they live a long time but have low participation in employer retirement plans. For Asian-Americans, extremely high wealth inequality in their working population spills over into retirement inequality.

This blog looks at the recent erosion in homeownership among black Americans since 2000, which threatens to further undermine their retirement security – Generation X is most at risk.

Black workers’ relatively low incomes are probably the first challenge of saving for retirement. In 2015, the typical black family earned $36,898, substantially less than the $63,000 earned by white families, according to the U.S. Census Bureau.  Not surprisingly, their participation in employer retirement plans was also lower in a 2009 study, even though white and black Americans have roughly similar access to 401(k) plans through their employers. More than 77 percent of whites with this option save in a 401(k), and only 70 percent of blacks do.

Homeownership is also crucial to building wealth for retirement: the largest asset most older Americans possess is their house. This asset can translate into additional disposable income if the mortgage is paid off.  Retirees can also downsize to a smaller home or take out a reverse mortgage loan that doesn’t have to be repaid until the homeowner moves out or dies.

The problem for black Americans is that homeownership is going in the wrong direction. …
Learn More

March 7, 2017

Long-term Care on a Boxed-wine Budget

The dangers of isolation in old age, the quest for a nice nursing home on “a boxed-wine wallet” – Annabelle Gurwitch approaches these issues with humor in a PBS NewsHour video that touches on themes previously covered in this blog.

When Gurwitch and her sister started grappling with finding a new home for their parents, one that would provide care for them, the sisters faced some tough decisions – and their parents had to make difficult compromises.

But when their father became very ill, something wonderful happened in their parents’ new community. …Learn More

November 1, 2016

Housing Bust Still Plagues Pre-Retirees

In 2013, almost 40 percent of all households ages 55 and over had not paid off their mortgages, up from 32 percent in 2001. These borrowers were also carrying a lot more housing debt by 2013.

During that time span, the housing boom first encouraged homeowners to borrow against their newfound home equity.  Then the 2008 bust hammered house prices from Miami to Seattle, reducing home equity and leaving many people holding relatively large mortgages.

By 2013, these two factors had combined to exacerbate Americans’ poor preparation for retirement, according to a study by the Center for Retirement Research, which supports this blog.

The researchers analyzed the impact of the bursting of the housing bubble on the National Retirement Risk Index (NRRI) through its effect on home equity, the largest store of non-pension wealth for most retirees.  The baseline NRRI estimate, using 2013 data from the Federal Reserve’s Survey of Consumer Finances, was that 51.6 percent of working-age households were at risk of having a lower standard of living in retirement. Housing is part of the index, because retirees are assumed to convert their home equity into income by taking out a reverse mortgage.

The 2013 NRRI baseline was adjusted to see what would’ve happened if households had not run up their housing debt during the bubble and if house prices, rather than jump up and then plunge in 2008, had kept up their historic pace of increases since the 1980s. In that case, the researchers found, the share of households at risk would have been 44.2 percent – not 51.6 percent.

In other words, had the housing bubble and subsequent crash not occurred, fewer households would be at risk of having insufficient retirement income.

The middle-class was hardest hit by the crisis, probably because they’re more likely to own homes than people with low incomes and because housing wealth is more important to them than it is to wealthy people. …Learn More

September 29, 2016

Is There a Senior Housing “Crisis”?

Headlines about how much senior housing the aging baby boom generation is going to require often include the word “crisis.”

But it might be time to rethink our dire assumption that there won’t be enough housing for seniors, since boomers are living longer and are healthier than past generations and are changing what it means to grow old in this country.

One example is the U.S. nursing home population, which has remained fairly stable even though the elderly population is growing, according to a 2010 report by the Stanford Center on Longevity. The center cited better health as a key contributing factor.

Taking trends like these into account, a California real estate services firm has raised the age assumptions it uses to project increases in demand for senior housing, defined as facilities that include some level of care. The firm, Rockwood Pacific, still expects demand to increase over the next decade but at a slower rate. After that, when the oldest boomers are starting to turn 80, demand will continue to rise but also more slowly.

“When I started in this business in the 1990s, everyone talked about the 65-plus population” and its need for senior housing, said co-founder Frank Rockwood. “Now when you go to a senior housing conference, we talk about 75-plus. I’m saying now the time’s come we need to discuss 80-plus, rather than 75-plus.”

Doing so leads to big drops in the number of potential candidates for nursing homes, memory care units, and assisted living and independent living facilities, according to Rockwood’s estimates. (Residents in independent living communities share a central dining room and tend to be healthier than people the same age who reside in assisted living facilities, he said.)

Assuming people largely won’t need senior housing until at least 80, the firm lowered its forecast of demand growth over the next decade to about 2-3 percent annually, down from 3-4 percent under the 75-plus assumption. …Learn More