Boomers May Be Running Short on Retirement Funds

Many baby boomers have accumulated more wealth than their parents’ generation, and possibly even more than their children as well.  However, accessing that wealth is where the challenge comes in.  According to a recent article, this is due to a couple reasons.  Many boomers have been more active users of debt; the median equity for boomers is only about 60% of their home’s value.  Many baby boomers are also facing rising living costs and a potentially crowded real estate market in the future. Ben Mandel, executive director and global strategist of multi-asset solutions at J.P. Morgan, explains how “a real estate sell-off by millions of boomers would create a long-run headwind in the property market, thus holding down prices and perhaps leading to disappointing outcomes for retirees.”1

In 2013, the median assets acquired by boomers was approximately $253,000 which is more than their parents had going into retirement, and likely more than younger generations will have.  However, according to Mandel, about $187,000 of these assets are tied up in residential property.1

Mandel and co-author, Livia Wu, a quantitative research analyst at J.P. Morgan, estimate that social security and financial assets will provide a majority of the income stream for boomers, providing them with approximately $32,000-$36,000 per year.  Some may also receive inheritance and/or gifts, bringing their total annual income up to the $34,000-$40,000 range.  Considering the fact that the median boomer household spends almost $56,000 per year, this leaves a significant gap in income.  Many boomer children are struggling with unemployment, under employment and paying off student loans.  As a result, many boomers will need additional funds “to ‘smooth imbalances’ between generations by helping younger people financially.”1

If a significant portion of your wealth is tied up in home equity, and you’re looking for a way to supplement your retirement income, a reverse mortgage may provide the extra funds you need to help live a more comfortable lifestyle.  A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan (FHA).  A reverse mortgage enables seniors to access a portion of their home’s equity to obtain tax free1 funds without having to make monthly mortgage payments.The loan typically becomes due when the borrower moves out of the home as their primary residence or passes away.  At that time, the borrower or their heirs can choose to repay the reverse mortgage loan and keep the home, or sell the home to repay the loan.

If you’d like to learn more about reverse mortgages and see if you’re eligible, please use our Reverse Mortgage Calculator or call 800-218-1415.

 

1 Boomers’ Retirement May Run Low on Cash – nasdaq.com, by On Wall Street, 11/20/15, http://www.nasdaq.com/article/boomers-retirement-may-run-low-on-cash-cm545346.

2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

3 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.

Author:  Meredith Manz