TITLE

Housing Obligations Endanger Rules of Thumb for Retirement Income

PUB. DATE
September 2006
SOURCE
Journal of Financial Planning;Sep2006, Vol. 19 Issue 9, p52
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Research for this article indicates that changing contract terms for mortgages, mortgage refinancing, and mortgagee demographics jeopardize long-standing rules of thumb regarding the necessary level of retirement income. Financial planners should view the notion that retirees need 70 to 80 percent of preretirement income as suspect in today's mortgage environment. This article used U.S. Census Bureau data from 1980, 1990, and 2000 to investigate mortgage trends. One trend is that a significantly higher percentage of respondents in their fifties, sixties, and seventies-plus report carrying mortgages and second mortgages in 2000 than in 198O. The trend is highest among those with higher incomes. Low interest rates have encouraged mortgage refinancing, resulting in the extension of some mortgages into retirement Creative home financing, such as interest-only mortgages, is also allowing more homeowners to carry larger mortgages into retirement. Mortgages now consume a larger percentage of household income among all age groups, and the percentage is highest among those in their sixties, seventies, and older. Additional findings suggest that increased mortgage payments are occurring when the some individuals are retired and facing family educational responsibilities. The use of reverse mortgages could counter some of the other mortgage trends, making old rules of thumb still acceptable. But the number of reverse mortgages remains too small to play a significant role. In light of these results, the question is whether Americans will increase their life savings or reduce other consumption during retirement to compensate for continuing mortgage payments.
ACCESSION #
22334881

 

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