Retirement is often thought of as “the golden years,” the time of life where the stresses and worries of the working world are in the past. The term may bring to mind images of sunset evenings on the porch, sipping a cool drink, and watching the world go by. Unfortunately, for many baby boomers, the picture perfect image of retirement is clouded with burdening financial troubles that cast a shadow on the years ahead.
The Center for Disease Control reports that the life expectancy for 65 year olds is at an all-time high of 84 years.1 This means that baby boomers’ retirement accounts will need to sustain them for at least 20 years. However, many retiring baby boomers are experiencing anxiety over outliving their retirement savings. According to a report by the Insured Retirement Institute, only 23% of baby boomers believe they will have enough money for retirement.2 Seniors who feel financial uncertainty as they enter retirement may experience stress which can ruin a time that should be filled with happiness and relaxation.
Unfortunately, financial data shows that many of the financial worries that baby boomers are experiencing are of legitimate concern. To calculate the amount needed to sustain a 25 year retirement, Business Insider recommends dividing your required annual income by 4%.3 The resulting figure represents the lump sum needed to fund retirement at a 4% annual draw rate. For example, someone who requires $40,000 per year will need $1,000,000 to fund a 25 year retirement.
Perhaps not surprisingly, many baby boomers are not prepared to sufficiently fund their retirement years. Research indicates that 68% of baby boomers have less than $250,000 saved for retirement.2 Even when adding in other means to fund retirement, most baby boomers are coming up short. According to the Social Security Administration, the average monthly benefit for retired workers drawing social security is $1,369 per month.4 When factored over 25 years, this equates to only $328,560. While the gap between financial need and annual income can be overwhelming, there are a number of resources that are becoming more popular for retiring baby boomers, including using home equity.
The Center for Retirement Research at Boston College recently found that Americans over the age of 65 often have more cash in their homes than in 401(k)s, IRAs or other investments. The average U.S. homeowner age 65- 74 has $125,000 in financial assets. By comparison, those same individuals have an average of $150,000 in home equity. That disparity grows, to $115,000 in assets and $160,000 in home equity, between the ages of 75-84.5
Many senior homeowners with a substantial amount of equity often fail to consider the equity in their home as a source of money for unexpected expenses, like home repairs. A Home Equity Conversion Mortgage (HECM) can be a useful financial tool as unexpected expenses pop up during retirement years. With a HECM you can cash out a portion of your home equity, while continuing to live in your house without making monthly mortgage payments.6 Proceeds from a reverse mortgage will not affect your Medicare premiums or Social Security taxes.7
To learn more, or request a free eligibility assessment contact a licensed loan advisor at 1(800) 976-6211 or click here to request a call.
1 Centers for Disease Control and Prevention. Life Expectancy at Birth, at Age 65, and at age 75, by sex, race, and Hispanic origin: United States, selected years 1900-2015. https://www.cdc.gov/nchs/data/hus/2016/015.pdf
2 Insured Retirement Institute. IRI Baby Boomer Expectations for Retirement 2017. https://www.myirionline.org/docs/default-source/research/iri_boomers-expectations-for-retirement-2017.pdf
3 Business Insider. Here’s How Much Money you need to Save to Retire on a Beach and Play Gold all day by Age 40. http://www.businessinsider.com/how-to-retire-by-40-2017-6
4 Social Security Administration. Fact Sheet Social Security. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
5 Center for Retirement Research at Boston College. Using Your House For Income In Retirement. http://crr.bc.edu/wp-content/uploads/2014/09/c1_your-house_final_med-res.pdf
6 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to Federal Housing Administration requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
7 Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.