May 10, 2022

Staying healthy is becoming a preoccupation for baby boomers as each new medical problem arises and the existing ones worsen.

The stress of having too much debt isn’t helping.

The older workers and retirees who carry debt are less healthy than the people who are debt free, and higher levels of debt have worse health effects, according to Urban Institute research. The type of debt matters too. Unsecured credit cards have more of an impact than secured debt – namely a mortgage backed by property.

Debt can erode an individual’s health in various ways. The stress of carrying a lot of debt has been shown to cause hypertension, depression, and overeating. And it can be a challenge for people to take proper care of themselves if they have onerous debt payments and can’t afford to buy health insurance or, if they are insured, pay the physician and drug copayments.

This is an issue, say researchers Stipica Mudrazija and Barbara Butrica, because the share of people over age 55 with debt and the dollar amount of their debts, adjusted for inflation, have been rising for years. In this population, increasing bankruptcies – a high-stress event – have been the fallout.

In an analysis of two decades of data comparing older workers and retirees with and without debt, the researchers found that having debt is tied to the borrowers’ declining self-evaluations of their mental and physical health. Older people who are in debt are also more likely to be obese, to have at least two diagnosed health conditions, or to suffer from dementia or various ailments that limit their ability to work.

The bulk of their debt is in the form of mortgages, which increasingly have strained household budgets in recent decades as home prices have outpaced incomes. Piled on top of the larger mortgage obligations can be payments for credit card debt, medical debt, car loans, and college loans – often for the boomers’ children. …Learn More

May 13, 2021

One telling indication that retirees are in serious financial straits is when they take less of their medications or don’t fill prescriptions.

Nearly one in four low-income retirees has difficulty paying for medications, despite passage of Medicare Part D in 2006, which reduced out-of-pocket drug costs. Between 2011 and 2015, the average Medicare beneficiary spent $620 to $700 a year on prescriptions, and people with diabetes, lung disease, and cardiovascular disease spent more than $1,000 a year.

One way retirees can address such hardships would be to tap some of the equity in their homes. Although a homeowner probably wouldn’t use this strategy just to cover drug copayments, new research finds that older Americans who tap equity significantly increase their adherence to their medications – and this finding has broader significance for improving their retirement security.

Most older homeowners are, on the one hand, reluctant to pull cash out of their homes – often their largest asset – through a home equity loan, mortgage refinancing, or reverse mortgage. Yet many of them don’t have enough income to live comfortably and could put this asset to good use to reduce their debt or pay medical bills if they become seriously ill.

To test how home equity might help retirees, the researchers used a series of surveys between 1998 and 2016 that have data on older people’s finances and ask whether, at any time in the past two years, they took “less medication than prescribed … because of the cost?” The analysis controlled for various influences on financial well-being, including education, marital status, and cognitive health, as well as financial resources.

Extracting home equity improved adherence to medications in the short term, particularly for homeowners over 65 who have little wealth outside of their homes. Separately, the researchers showed that retirees who tapped home equity were significantly more likely to take their medications at a critical time – after experiencing a serious illness.

“Housing wealth can play an important role in reducing economic insecurity,” concluded the study, which was funded by the U.S. Social Security Administration. …Learn More

Field Work

May 4, 2021

The housing market has shrugged off the pandemic, and home prices are rising sharply due to historically low interest rates. The market crash more than a decade ago is a distant memory.

The total value of the equity in older Americans’ homes has doubled since 2010, hitting $8.05 trillion at the end of last year. The irony is that federally insured reverse mortgages, which allow a long-time homeowner to cash in on tens of thousands of dollars of equity, aren’t very popular.

Last year, only 42,000 Home Equity Conversion Mortgages (HECMs) were sold – half as many as in 2010 – according to the U.S. Department of Housing and Urban Development (HUD).

One reason HECM reverse mortgages haven’t caught on, as the Consumer Financial Protection Bureau notes, is that they might not be suitable to homeowners who eventually sell their house. As the loans accrue interest, the “balance is likely to grow faster than their home values will appreciate,” the agency said.

But most retired homeowners never move, and HECMs are one option for people who are short on income. “We accept it as ‘normal’ to spend-down 401(k) funds, yet somehow home equity is sacrosanct,” said Dave Gardner, a former mortgage broker who sometimes handled reverse mortgages. Retirees, he said, should consider this question: “Could you achieve a better result and extend the lifespan of your nest egg with a reverse mortgage?”

To qualify for the loans, borrowers must be at least 62. They can take the reverse mortgage proceeds in the form of a lump sum, line of credit, or monthly payments – or some combination of these.

Curious homeowners can check out the federal government’s new pamphlet, which explains the basics of reverse mortgages. It’s aimed at people who already have the loans but is just as useful for people who are curious about using one themselves.

Before proceeding with any complex financial transaction, however, it’s critical to do due diligence. A reverse mortgage is no different. …Learn More