Posts Tagged "offspring"

Top of a house

Retirees’ Home Equity: Useful but Unused

Many older Americans could benefit from using home equity for some much-needed income in retirement. But they have found many reasons not to.

Some want to preserve that housing wealth for their kids. Others don’t like the idea of cashing in on the equity if it means relocating to a smaller house or apartment or a less expensive neighborhood. They also have plenty of concerns about federally insured reverse mortgages, which are a way to extract equity but are complicated to understand.

These doubts, expressed in readers’ comments on recent articles, are persistent. But economists see things differently: home equity has great potential to ease retirees’ financial problems – after all, roughly $8 trillion of wealth is locked up in older people’s houses.

K. Friesen is a rare reader who agrees. She said a couple women in her family are proof of the benefits of deploying home equity. Thanks to a reverse mortgage, her aunt had “a roof over her head until she died at age 97,” Friesen wrote in a comment posted to “Tapping Home Equity – Retirees’ Relief Valve.” The article described a study demonstrating that using home equity is effective in reducing financial hardship.

Now Friesen’s mother has a reverse mortgage. “If she can squeeze every dime out of the little she has to have a better quality of life, I’m all for it.”

The advantage of reverse mortgages is that they don’t have to be paid back before the homeowner dies – the catch is that the borrower must continue to live in the house. A potential downside, as a reader noted, is that if a retiree has to sell the house and pay the loan back, the balance and accrued interest will have depleted equity.

But in fact, selling in retirement is an unlikely scenario. Nearly three out of four older workers either don’t move out of their current home or, when they retire, they sell their house, buy a new one, and stay put, according to research featured in “Most Older Americans Age in their Homes.”

Granted, these homeowners tend to be healthier than the older people who move around more. But Paul Brustowicz said even retirees who have health issues want the same thing as everyone else: to age in their own homes. …Learn More

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