Results from recent studies by Northwestern Mutual and the Federal Reserve indicate that people are relying on home equity to carry them through retirement:
- One-in-five Americans (20%) have NO retirement savings (another 10% have less than $5,000)
- Almost 50% of adults have taken no steps to prepare for the likelihood of outliving their savings
- 10,000 Baby Boomers turn 62 every day (the generation closest to retirement age born between 1946-64, representing almost one third of the U.S. population)
- One in three Baby Boomers have between $0-$25,000 in retirement savings
- 50% of Baby Boomers have no retirement savings
These are scary statistics, especially given the continuance of rising healthcare costs and the U.S. National Debt now over $22 Trillion (renewing concerns about the adequacy of and reliance on Social Security funds). And 65% and 36% of retirees receive at least 50% and 90% of their income from Social Security, respectively.
The saving grace is that 80% of seniors have substantial equity in their homes (an all-time high).
However, with people living longer (85+ is the fastest growing demographic in America) coupled with nominal income and insufficient savings, many retirees will have difficulty refinancing their homes or qualifying for a purchase mortgage.
One alternative is to sell their home and pay cash for a downsized home – however, the change is not always economical or welcomed, and the new location may carry high homeowner’s association fees. The other alternative to seriously consider is a Home Equity Conversion Mortgage (aka Reverse Mortgage).
Here’s the Point: Retirees with nominal savings and income but decent home equity have the FHA-Insured Reverse Mortgage as a commendable solution.