Soaring Home Prices Offer Rare Glimmer of Hope for Retirees
There’s no point sugar coating it. When it comes to saving for retirement, baby boomers, especially those of us who have reached our 60s, are in a lot of trouble.
According to Transamerica, most Americans who are in their 60s have saved just over $170,000 for retirement. This may sound like a lot of money, but, consider the following.
If you got a return of 4.6% (the average return for the Barclays Aggregate U.S. Bond Index), $170,000 would give you just $641 a month in passive income.
Could you bring this up to $1,000 a month by consuming your savings? Absolutely, but, with this approach, your money would dry up completely within a couple of decades.
There is one area though where seniors are doing better than expected… with the value of our homes!
Soaring Home Prices Offer Hope to Seniors, but, Also Risks
It’s rare to find good news related to our generation’s retirement readiness. But, this is exactly what a new report by the National Reverse Lender’s Association and RiskSpan offers.
According to their latest study, housing wealth among people over 62 soared $104 billion to a staggering $7.14-trillion in Q1, 2019. This represents 2.7% growth just in the first quarter of 2019.
It is interesting to note that the value of our homes increased at a time when the overall housing market is showing weakness. Specifically, according to Zillow, the average house price in the U.S. dropped for the second month to $226,800.
This means that the type of housing that our generation owns is typically representative of the higher end of the market and, so far, has not been impacted by the recent downturn.
Are Our Homes a Reliable Source of Retirement Income?
With our savings barely sufficient to cover our monthly expenses, it’s no surprise that so many of us are looking for ways to tap the equity in our homes. One option that many seniors are considering is a reverse mortgage, which allows homeowners to exchange equity in their homes for reliable monthly payments.
According to Peter Bell, CEO of the National Reverse Lender’s Association, “Reverse mortgages have become an essential component for addressing a huge problem for many Americans: funding retirement… More than 1.12 million families have used a reverse mortgage alongside side their 401(k)s, IRAs, savings, investments, Social Security, Medicare and Medicaid to cover life’s daily expenses, so they could live more financially secure lives.”
Of course, reverse mortgages have their critics. For starters, these financial agreements can be complex and difficult for the average person to understand. So, it is important to seek professional financial advice before signing a reverse mortgage deal.
In addition, because reverse mortgages are often sold by commission-based salespeople, homeowners often feel pressured into signing a deal quickly. This can lead them to miss important details (or even hidden fees) that they might have discovered if they had taken their time.
Finally, many reverse mortgage agreements contain language that makes it possible to foreclose on the property if it is left empty. So, for example, if you had to spend several months in the hospital, you might receive a nasty emotional and financial shock if your lender called in your loan at exactly the worst time.
Still, despite all of these potential risks, there is no denying that our homes offer a rare glimmer of hope on our path to financial freedom in retirement. The most important thing for seniors to remember is that tapping the equity in your home is a big decision that should be made with care – and, of course, the advice of a financial expert.
Would you ever consider taking out a reverse mortgage on your property? Why or why not? What perceptions do you have of the reverse mortgage industry?