There is a new threat to your dream of an enjoyable retirement. It’s not a stock market correction after the long bull market – it’s your housing debt.
While a traditional vision of retirement may evoke thoughts of travel, golf, volunteering, learning a new skill or language, and quality time spent with grandchildren and lifelong friends, that thinking may need to expand. For the vast majority of Americans, being able to remain in one’s home for as long as possible is also a critical goal – one which many take for granted. In a recent survey, approximately four out of five mid-life and older adults indicated that they would like to stay in their current residence for as long as possible.1
However, this goal is at risk for many. The reason may surprise you.
Housing debt for those approaching, and currently in, retirement has exploded over the last 25 years, and is eroding individuals’ ability to enjoy a comfortable retirement.
For those ages 65 to 74, while the value of homes increased 76 percent from 1989 to 2013, housing debt increased 393 percent.2
Easier access to credit, low interest rates, lower down payment requirements, and increased refinancing activity have each contributed to the rise in housing debt. Notably, close to half of all households who refinanced between 1985 and 2010 extracted cash from their home via cashout refinancing.3
This results in higher monthly payments and/or payments being made for longer periods of time. These payments interfere with individuals’ ability to save for retirement, and also use up limited income resources once they’ve entered retirement – funds that might otherwise be used to carry out retirement dreams. In a world of disappearing pensions, market volatility, and longer life spans, individuals bear greater responsibility and risk. And, in an ironic twist, lower interest rates have allowed individuals to borrow more for their homes, but they have simultaneously made saving for retirement more expensive since retirement wealth cannot grow as fast at a lower rate of interest.
The problem with higher housing debt often surfaces after the death of a spouse. At this point, household income is often dramatically cut, yet housing costs are not. This can put financial strain on a widow or widower who wants to remain in the home.
If housing debt can be reduced or eliminated, retirees will have a greater ability to stay in the home they love – and potentially be more able to pass it down to their loved ones someday.
Notably, it’s not just the widow or widower who may worry, but also adult children who are concerned about an aging parent. Many adult children are already struggling with their own financial pressures of paying a mortgage, paying for soaring college costs, and saving for their own retirement. Worrying whether an aging, widowed parent will have no choice but to move out of his or her home is an added stress.
Life insurance can be the blueprint to building better peace of mind.
For prior generations, there was typically little need for life insurance in retirement beyond covering burial costs; a deceased breadwinner frequently left pension income, retiree healthcare, and little debt to a surviving spouse.
Today, however, it can be quite common for retirees to leave no pension income, no company-provided health insurance and a lot of debt behind.
That is why incorporating life insurance as part of your retirement strategy can help minimize future risks. The proceeds from a life insurance policy can be used by the surviving spouse for any reason, including to help pay off an outstanding mortgage so they can remain in the home.
That sense of security can help you feel better about retirement in general and more confident that you and your spouse will be taken care of and your adult children will be able to focus on their own finances. By taking action now you can help ensure that the retirement you have envisioned for yourself can become a reality.