It is the classic American Dream. You spend the early working years saving up to buy a home and the primary working years paying off that home. As your retirement years approach, you have a fully paid-off home as an asset and can focus on pouring as much income as possible into your retirement funds. This rosy scenario is becoming less likely in recent years as more Americans carry mortgage debt into their retirement years.
A recent survey released by LIMRA shows how rapidly the situation has changed. Data from LIMRA's Secure Retirement Institute shows that as recently as 1989, 11% of homeowners in the earlier years of retirement (ages 65 to 74) carried mortgage debt with an average balance of $29,000. By 2013, 43% of that same demographic carried a mortgage and the average debt had risen to $135,900.
The situation is equally grim for older retirees. Only 5% of homeowners aged 75 and older had mortgage debt in 1989, compared to 20% in 2013. The average 2013 debt for homeowners in this demographic was $84,900. Given that the vast majority of retirees own homes (90% of those with at least $100,000 in assets and 70% of those with lesser assets), these trends show a disturbing level of collective mortgage debt among retirees.
How about those approaching retirement age? The story is similar. Just under half of homeowners aged 55 to 64 carried mortgage debt in 2013 compared to 21% in 1989. The average debt in this demographic for 2013 was $152,200.
LIMRA's findings are in line with the results of a 2014 report from the Consumer Financial Protection Bureau (CFPB). In addition to producing similar numbers for the rise of retiree mortgage debt, the CFPB found that retirees owed more on the mortgages relative to the value of their home. The debt-to-value ratio for homeowners aged 65 and older rose from 30% in 2001 to 46% in 2011.
The Great Recession was particularly brutal to retired homeowners with mortgages. From the beginning of the recession in 2007 to 2011, homeowners aged 65 or older who were seriously delinquent with mortgage payments (meaning at least ninety days late or in foreclosure proceedings) increased by a factor of five. Just under 5% of mortgage holders aged 65 to 74 were in this category, joined by almost 5.9% of those aged 75 and older. Foreclosure rates increased as a result, and while foreclosure is difficult on anybody, it is extremely difficult for retirees to recover from such a loss.
Why is retiree mortgage debt increasing? A change in mindset is part of the reason — older generations were generally more determined to clear debts prior to retirement than the boomers that are entering retirement. Current tendencies toward larger, more expensive homes and increased use of home equity to fund other expenses aggravate the issue.
If you find yourself carrying mortgage debt into retirement or your later working years, it is important to take steps to deal with your debt. If you do not plan to leave your house to your heirs and have a sufficient level of equity, you can live off your existing home equity with a reverse mortgage — assuming you do not outlive your equity.
Otherwise, lay out a plan to reduce expenses and pay off the mortgage faster. It is far more difficult to enjoy your retirement with mortgage debt hanging over your head, and retirement should be all about enjoying yourself. That's why you worked hard for all those years.
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