As we have recently blogged about, baby boomers are limping towards retirement with significant debt; much more so than their parents. Not all of it is their fault. During the Great Recession, on average, those 50 to 64 years old lost 32% of their net wealth. During this same period, the average debt on their homes spiked to 52%. This could not have happened at a worse time for this large segment of the working population.
In 1992, only 19% of households 65 and older carried mortgage debt into retirement, compared to 40% of households in the same age group in 2010. Regardless of whether the retirement shortfall is their fault the baby boomers have to look for more and varied solutions to this challenge. Here are some options that you may or may not have considered.
A growing trend among this age group is to work for longer than they had planned. For those that refinanced their homes in their 50’s this means they have to continue working into their 80’s to pay off a 30 year mortgage.
An option I really like is to do a Reverse Mortgage on your current home and get out enough funds to finance a down payment on a rental property. Interest rates are amazingly low right now and rental prices are on the rise. I highly recommend getting an experienced property manager to guide you along the entire process and help you to generate a monthly income for retirement. The great part of this solution is that the renters are paying off your mortgage for you while you generate a monthly profit.
Another option is to cut back on current living expenses. That daily trip to Starbucks can cost over $1,300/year or an $8 lunch adds up to over $2,000/year. Altogether skipping or taking a more modest family vacation can save $1,000 to $10,000/year.
Others may modify their investment allocations to try and make up the difference. This can be a risky option as advisers generally agree that your investment strategy needs to change to protection over performance as you get closer to retiring. Guaranteed returns are preferable to high risk/high return investments at this stage in life as you have less time to make up those losses.
An increasingly popular option of course, is to eliminate a mortgage payment with a Reverse Mortgage. There are a few ways to do this. One option is to stay in your home and Reverse it, eliminate the payment, and get a Guaranteed monthly check, Line of Credit or Lump Sum payout.
Another, perhaps, more conservative option is to sell your current home and purchase a new, less expensive home with a Reverse Mortgage for Purchase. Your home may be too large for you now that the kids are out, or will be too much to maintain in future years, or it may be a two story, or just too large of a mortgage debt to even qualify for a Reverse Mortgage.
Whether baby boomers choose one solution or multiple solutions, the sooner one gets started, the better it will be for them in retirement. Call today for a Reverse Mortgage Consultation or to find a financial planner that can evaluate your entire financial picture and suggest modifications that can give you the peace of mind necessary going into retirement.