Stanford: Boomers are entering retirement with less savings, greater mortgage debt

Could home equity access be the solution?

Americans are now living longer than ever before, and experts predict that a record number of Baby Boomers will soon enter retirement.

But when compared to past generations, the Stanford Center on Longevity has discovered the landscape of homeownership and retirement in America is changing – for the worse.

In its report, titled “Seeing Our Way to Financial Security in the Age of Increased Longevity,” Stanford points out Baby Boomers are entering retirement with less savings and greater debt.

The report points to an increase in mortgage debt among older homeowners as a concern, noting that in 2012, one-third of homeowners over 65 were still paying off a mortgage – up from less than a quarter of homeowners in 1998. And, the amount owed on a mortgage has nearly doubled from $44,000 to $82,000.

“Considering the vast size of the Boomer population, increased life expectancy, and the rate at which today’s Boomers are retiring, being ill-prepared for retirement has profound implications for the overall well-being of individuals, families, and society today and for generations to come,” the report states.

According to the report, in terms of home equity accumulation and total wealth, Baby Boomers are financially weaker than earlier generations of retirees.

Stanford’s data reveals that in 2014, one-third of Baby Boomers had no money saved in retirement. For those who did, the median balance was just $200,000 – surely, not enough to foster a comfortable retirement.

Although society’s approach toward retirement has changed little, retirees will now have to stretch their personal means even further, Stanford’s report said.

“Our findings illustrate that the majority of American workers from all backgrounds aren’t on a path to retire full time at age 65 under their pre-retirement standard of living,” the report states. “As a result, it’s likely they’ll need to consider alternative models of retirement, such as working beyond traditional retirement age, changing one’s standard of living in retirement, strategies for deploying retirement savings or some combination of these models.”

For some Baby Boomers looking to supplement their income in retirement, home equity could provide a solution.

According to the latest NRMLA/RiskSpan Reverse Mortgage Market Index, aggregate home equity levels for homeowners 62 and older hit $6.9 trillion in the second quarter of 2018. This was a $130 billion jump from the previous quarter.

“If you consider that the typical retiree household might have one or two incomes from Social Security, a modest pension and/or limited income from low-yielding fixed-income instruments, and, perhaps, a diminished 401(k) account, then home equity becomes their greatest asset and an important resource for funding their future,” said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association.

Aside from reverse mortgages, a number of other equity release and sale-leaseback products have come to market to help American homeowners tap into what might be their greatest source of wealth.

Companies like EasyKnock offer homeowners the change to sell their home and lease it back in order to access their equity without the need to leave the house.

And others – like Unison, Patch, Equifi and Hometap – are pioneering the concept of homeownership investment by offering homeowners cash in exchange for the opportunity to share in their home’s appreciation.

Alicia Munnell, director of the Center for Retirement Research at Boston College, told HousingWire home equity is likely to become an increasingly important part of the retirement income puzzle, however people choose to tap it.

“People will turn to home equity to supplement their retirement income,” she said. “I am really committed to this notion that the house has to be part of the answer to the retirement security challenge.”

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