Posts Tagged "mortgage"

Silhouettes of houses in a row

Boomers at 80: Housing Issues to Grow

The baby boom generation is continuing to work its way up the age ladder. The number of Americans over 80 will more than double to nearly 18 million over the next two decades.

And that’s partly because baby boomers are healthier and are living longer – they are also enjoying more of their retirement years free of disability than previous generations.  But unfortunately, boomers can’t avoid the inevitability of their growing vulnerabilities and the impact this will have on their day-to-day lives. A new report by Harvard’s Joint Center for Housing Studies makes some sobering predictions about the issues the oldest retirees can expect to face in the future, from widening income inequality to more people living alone and in isolation.

The findings, taken together, point to a range of potential trouble spots revolving around housing our aging population.

  • As people get old, their spouses die, their bank accounts dwindle, and their rents keep rising. For these and other reasons, housing creates more of a cost burden at 80 than at 65. The Harvard housing center defines someone as cost-burdened if they spend more than 30 percent of their income on housing. Today, nearly 60 percent of households over 80 fit this definition, and their absolute numbers will increase as more baby boomers reach that age. One place the financial strain shows up is food budgets: retirees who spend disproportionate amounts on housing spend half as much on food as people whose housing costs are under control. …
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Red piggy bank on a yellow background

Does Increased Debt Offset 401k Savings?

Roughly half of U.S. employers with a 401(k) plan enroll their workers automatically, deducting money from their paychecks for retirement unless they explicitly opt out of this arrangement. This strategy is widely viewed as a good way to get people to save.

But auto-enrollment might not be as effective as it seems, if individuals are compensating for a smaller paycheck by borrowing more.

A new study of civilian employees of the U.S. Army used credit and payroll data to gauge whether debt increased for employees who were automatically enrolled in the federal government’s retirement savings plan. The researchers compared changes in debt levels for people hired after the government’s 2010 adoption of auto-enrollment with hires prior to 2010.

The good news is that since the broadest debt category, which includes high-rate credit cards, did not increase, it did not offset the employees’ accumulated contributions. Their credit reports showed no increase in financial distress either, the study concluded.

However, the findings for car and home loans were ambiguous, so auto-enrollment “may raise these latter types of debt,” said the researchers, who are affiliated with NBER’s Retirement and Disability Research Center.

If workers are, in fact, borrowing more, the question, again, is whether the new debt is offsetting the additional savings under auto-enrollment. Auto and home loans – in contrast to credit cards – are used to finance an asset that has long-term value. Whether these forms of debt improve or erode net worth depends on the asset’s value and whether the value rises (say, a house in a growing city) or falls (a car after it’s driven off the lot).

The researchers did not have access to data on federal workers’ assets, which they would need to see what’s happening to their net worth. This remains an important question for future research. …Learn More

Photo of tornado damage in Beavercreek, OH

Why Americans Can’t Come Up with $400

In Beavercreek, Ohio, the cleanup from a recent tornado has begun. But debris is still piled high on many residents’ lawns.

“What we’re seeing following this tornado is people not having enough cash to pay upfront for house debris removal even though insurance companies will reimburse them,” former mayor Brian Jarvis said on Twitter. The debris cleanup comes on top of other costs like temporary housing in this city east of Dayton.

Much was made recently of a survey in which four of every 10 American families said they could not cover an unexpected $400 expense. But no one explained why. New research has some answers.

Even when people have $400 in their checking or savings accounts, they don’t always feel like they have the money to spend. That’s because they may have already committed the funds to paying off their credit cards, according to an analysis by Anqi Chen at the Center for Retirement Research.

This problem isn’t confined to low- and middle-income people either: 17 percent of households earning more than $100,000 would have to scramble to find the extra $400.

The study uncovered what cash-strapped families have in common. …Learn More

Washington, DC skyline

Spotlight on Our Research, Aug. 1-2

Topics for this year’s Retirement and Disability Research Consortium meeting include the opioid crisis, retirement wealth inequality over several decades, trends in Social Security’s disability program, and the impacts of payday loans, college debt, and mortgages on household finances.

Researchers from around the country will present their findings at the annual meeting in Washington, D.C. Anyone with an interest in retirement and disability policy is welcome. Registration will be open through Monday, July 29. For those unable to attend, the event will be live-streamed. The agenda lists all of the studies.

Here are a few:

  • Why are 401(k)/IRA Balances Substantially Below Potential?
  • The Impacts of Payday Loan Use on the Financial Well-being of OASDI and SSI Beneficiaries
  • The Causes and Consequences of State Variation in Healthcare Spending for Individuals with Disabilities
  • Forecasting Survival by Socioeconomic Status and Implications for Social Security Benefits
  • What is the Extent of Opioid Use among Disability Applicants? …

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house roof

Home Equity Offers Big Boost to Retirees

Retirees’ primary sources of income are the usual suspects: Social Security and employer retirement plans. They rarely use a third option: the equity locked up in their homes.

The Urban Institute recently quantified how much this untapped equity could be worth to seniors in the United States and 10 European countries if it were converted to income – and the amounts are significant.

The typical retired U.S. household has the potential to increase its retirement income by 35 percent, researchers Stipica Mudrazija and Barbara Butrica estimate. In Europe, using home equity would add anywhere from 19 percent in Sweden to 100 percent in Spain.
home equity in various countriesLearn More

needle popping housing bubble

Subprime Crisis Lingers for Minorities

As Americans were riveted to the spectacle of teetering Wall Street behemoths in 2008, another ruinous tragedy was beginning to unfold: a national foreclosure crisis.

chartBlack and Hispanic homebuyers were hit hardest by the foreclosures that resulted from unbridled sales of predatory subprime mortgages, which exceeded $500 billion annually at the market’s peak.

In the decade since the financial crisis, the stock market has rebounded smartly, but the damage to minority communities remains.  At the height of the foreclosure crisis, entire neighborhoods were littered with bank foreclosure sales and realtors’ signs advertising sales of the properties.

About 30 percent of black and Hispanic borrowers’ homes in total have gone into foreclosure in the years since the housing market crash, compared with 11 percent of whites’ homes.

“For [minority] families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership,” the Federal Reserve Bank of St. Louis concluded in a report on the continuing impact of the financial crisis.

But the damage goes deeper than that. Because home equity is often the most valuable asset that people own, the foreclosure crisis “severely damaged the balance sheets of minority families,” the Fed said. …Learn More

Personal Finance Videos for Young Adults

PBS Digital Studios is producing an excellent video series to guide 20-somethings who are starting their careers and want to get a handle on their finances.

In “Two Cents,” financial planners Julia Lorenz-Olson and her husband, Philip Olson, will make you laugh as they convey their very solid advice about personal finance. “How to Ask for a Raise” is perhaps the most relevant video to young adults – especially the ladies. Only one in three women believe that their pay is negotiable. Nearly half of all men do.

The potential for pay raises is highest for employees when they are in their late 20s and early 30s. But the boss isn’t likely to volunteer to increase anyone’s pay, the hosts explain – you have to ask. This is a scary thing to do, and the couple eliminates some of the anxiety by explaining how to prepare for that meeting with the boss.

The “Love and Money” episode asks the questions that are crucial to a successful partnership: how much does he or she earn and how much does this person owe? In “How Cars Can Keep You Poor,” the Olsons advise against buying a new car, which depreciates 63 percent in just five years – they compare it to investing in an ice cream cone on a hot day. A used car is a much better deal and the only sensible option for someone who’s already juggling rent and student loan payments. And the answer to “Should I Buy Bitcoin?” is, uh, no. Nearly half of all bitcoin transactions are illegal, Olson says.

For future-minded young adults, “How Do You Actually Buy a House?” walks through the entire process, explaining why it’s critical to get preapproved for a mortgage, how to choose a realtor, and what to expect in the closing. “Insta-Everything lays out the few pros and many cons of paying for on-demand services such as Grub Hub, InstaCart, and Task Rabbit.

Lorenzo-Olsen explains that the goal of their “Two Cents” videos is not to help young adults get more money (though a raise would be nice), “but to be happy with the money you have.”Learn More