So far, volatile stock markets, lingering inflation, economic uncertainty and unidentified flying objects have dominated the headlines in 2023.
But not enough has been written about the hurricane of storms gathering momentum in the United States. Americans are retiring at an alarming rate without having enough savings to spend their golden years. Their home equity could help them make ends meet.
According to the U.S. Census Bureau (opens in new tab)10,000 baby boomers retire every day, most with little or no savings. 2019 Federal Reserve Report (opens in new tab) More than 40% of retirees have entered this stage of life and are still making monthly mortgage payments. This monthly obligation can be a heavy burden for some retirees with a fixed income. In addition, there is the uncertainty of social safety nets.
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The future of social security
Depending on who you ask, Congress may or may not be considering cutting Social Security. The full retirement age has already been raised to 67. (opens in new tab) To everyone retiring this year. In any event, Social Security alone will not be enough to cover living expenses, medical expenses, housing, retirement wishes, general necessities, and comfort for most retirees.According to a report by the bipartisan Center for Budget and Policy Priorities, the average retirement benefit in January 2022 will be (opens in new tab) It was only $19,370. Considering the federal poverty level for 2022, (opens in new tab) At $18,310 for a family of two, it’s clear that most people will have a difficult old age if they rely solely on Social Security.
Needless to say, the data are alarming, but that doesn’t mean the situation can’t be rectified by adopting a more modern approach to funding non-work periods. Times have changed and historical strategies no longer work for many. Retirees are literally sitting at home, an incredibly powerful and untapped resource.
According to the U.S. Census, nearly 80% of people over the age of 65 have (opens in new tab) Meanwhile, the Collaborative Center for Housing Research at Harvard University found that older homeowners, on average, have an estimated $143,500 in home equity. (opens in new tab). By some estimates, demographically older Americans own nearly $12 trillion in housing wealth.
For many struggling retirees who can use their home equity through reverse mortgages and other home equity solutions to finance all kinds of expenses such as living expenses, long-term care, college tuition, and travel plans, housing is a sure bet. could be a solution to Adventure after retirement. Others are using home equity loan proceeds (often income tax exempt) to pay taxes on investments, loss IRA conversions and other asset leverage strategies.
A home equity solution like a reverse mortgage can also eliminate the need for monthly mortgage payments. This dramatically improves cash flow and creates leeway while allowing borrowers to retain ownership of the home and continue living in it. In short, it makes the house work for the renter instead of against it.
So why aren’t more people accessing the home assets they’ve built up over a lifetime?
Home equity mystery
2016 Fannie Mae National Housing Survey (opens in new tab) The survey found that 65% of retired homeowners over the age of 55 plan to continue living in their home for the rest of their lives, but 47% would rather keep the same home than borrow against it. I answered that I want to sell and downsize. . But downsizing isn’t always an option for people who have ties to their families and the communities in which they live. It’s also especially difficult for those with fixed incomes, not to mention the costs associated with moving and the ongoing affordability challenges facing the country.
The benefits of aging in the right place should not be overlooked either. Researchers are increasingly finding that people of a certain age are more likely to avoid physical and mental decline. (opens in new tab) and lead to better health outcomes.
For years, many Americans considered home equity extractors a loan of last resort. And at some point it was probably true. Cash-strapped homeowners were early adopters of home equity solutions only when they were desperate and had few options. But times have changed.wealthier borrowers (opens in new tab) More and more people are turning to home equity solutions, even when homes are worth millions of dollars. These are not individuals who are in debt out of precarious financial circumstances, but rather financially savvy people who view their homes as assets rather than heirlooms.
home is where the heart is
Another obstacle to accessing home equity is the emotion associated with the home. After all, this is where memories were made, first steps taken and holidays celebrated. The thought of taking out a loan on that stock can stir up strong emotions, as if the loan was being taken against the memory itself. But this is actually an opportunity to make more memories for decades to come, in the same home they know and love, and to look forward to the future and all the joys and challenges it may bring. You can do so with the financial security of being prepared. .
America’s retirement crisis won’t be easily resolved anytime soon, and with past retirements where seniors left their jobs with no debt, no mortgage balance, and confidence that a secure pension and social security would provide. would not be similar. Modern retirement calls for more creative strategies.
We need to take a fresh look at the overlooked options of the past that have been neglected and recognize the new realities facing older people. One of his ideas that has come of age is the power of home his equity. This untapped resource may be the key to retiring with less anxiety, financial security, dignity and a brighter future.
This article was written and presented by our contributing advisors, not the Kiplinger editorial staff. You can check the advisor’s record in the SEC (opens in new tab) or at FINRA (opens in new tab).