The National Retirement Risk Index (NRRI) shows the number of working-age households who are at risk of not being able to maintain their current lifestyle during retirement based on the Federal Reserve’s 2013 Survey of Consumer Finances.1 According to the 2013 index, 52% of working-age households are at risk for not having enough saved for a comfortable retirement. People facing retirement may feel like they have to rely on traditional forms of retirement income like Social Security benefits and personal savings. However, other options like a reverse mortgage loan could also be beneficial for meeting their retirement needs.
According to the survey, both home prices and home equity have increased from 2010 to 2013, thus decreasing the NRRI. Home values are important for all age groups, but especially for older Americans who are considering a reverse mortgage loan to supplement their retirement income. In order to be eligible for a reverse mortgage loan, homeowners must be at least 62 years old and have sufficient equity in their home. A reverse mortgage loan allows homeowners to tap into a portion of the equity in their home. Borrowers can receive their loan proceeds as monthly payments, a lump sum payment or a line of credit. The loan becomes due when the homeowner no longer lives in the home full time or the last borrower on title passes away. Generally, the loan is repaid by selling the property and any remaining funds belong to the heirs.
According to the study, from the third quarter in 2010 to the third quarter in 2013, home prices increased by 6%. For homeowners who own their homes outright or who owe very little on their mortgage, even modest increases in home values can mean the borrower will be able to access additional home equity. The amount of funds borrowers can receive from a reverse mortgage is based on the age of the youngest borrower, current interest rates and the appraised value of the home.
There are a number of factors that increase the NRRI. Legislation passed in 1983 increases the age of full retirement incrementally until 2022, when people born in 1960 turn 62. In 1983, about half of all American working households could claim full Social Security benefits at age 65. However, the age when people are eligible for full benefits is slowly being adjusted upward as “the share of households required to wait until 67 has continued to increase.”
In 2013, the Department of Housing and Urban Development (HUD) implemented additional safeguards to the Home Equity Conversion Mortgage (HECM) reverse mortgage program in order to help prevent borrowers from taking too much of their home equity. As a result of these changes, borrowers are able to access less of their home equity within the first 12 months of obtaining a reverse mortgage loan.
The NRRI assesses retirement security by age group, among other factors. From 2010 to 2013, the overall retirement risk decreased from 53% of the total population being at risk of not being able to maintain their current standard of living in retirement down to 52%. The 30 to 39 year old group’s risk decreased from 62% to 59%. Those in the 40 to 49 years old group decreased from a 55% to 52% risk. However, those in the 50 to 59 age group increased slightly from 44% to a 45% risk.
The NRRI highlights some unsettling statistics about how unprepared Americans are for retirement. Despite increasing home values and the stock market being up, according to the study “more than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65.” Therefore, workers may have to work longer, save significantly more, and/or look into other options such as tapping into their home equity through a reverse mortgage loan.
For more information about reverse mortgage loans or to speak with an advisor today, call 866-751-6105.
1 http://services.nrmlaonline.org/NRMLA_Documents/NRRI%20Update%202014.pdf