More Americans could face housing-related financial hardships in retirement, according to a new Harvard study. This, coupled with new Medicare worries, a dramatic shift could be setting itself up for the more than 130 million Americans over the age of 50. Not only that, but 10,000 baby boomers are turning 65 every day. This population trend will continue for at least the next 15 years. That means 20 percent of the country’s population will be retired seniors. These trends will continue, making every potential crisis, such as the Medicare Part B crisis, even worse. Experts also warn that more older Americans will also be renting their homes instead of owning their homes.
According to the study, an unprecedented number of America’s older generation will face a lower quality of life when all of these dynamics come together. There are plenty of ideas but little consensus among government officials, business executives, economists and others.
The potential 52 percent increase in Medicare Part B premiums is the closest crisis as it could go into effect within weeks, especially if Congress is unable to balance the budget by November 2. We already know that there will be no Social Security cost of living adjustments, or COLAs, for 2015, too.
Owning vs. Renting
What’s interesting is the difference in the housing dynamic of Americans over the age of 50. According to the study, homeowners tend to be in a much better financial position than renters. The majority of homeowners over 50 have retirement savings with a median value of $93,000, plus $10,000 in savings. More than three-quarters of renters, on the other hand, have no retirement and only $1,000 in savings on average.
To be sure, renters face the biggest challenges since they don’t have the advantage of home equity. But for many homeowners over 50, they’re now carrying mortgage debt in rapidly increasing numbers. Income levels tend to peak for most in their late 40s before declining in the 50s, and then comes retirement. The result is that housing costs consume a growing percentage of income as those over 50 get older and enter retirement.
From the Harvard Study:
- More than 40% of those over 65 with a mortgage or rent payment are considered moderately or severely burdened.
- At least 30% of their income goes toward housing costs.
- The percentage drops below 15% when they own their home.
- Those who go into retirement with rent or mortgage payments, there’s a big chance it will take up a significant amount of their income.
- In 1992, 60% of those between 50 and 64 had a mortgage, but by 2010, the number had jumped past 70%.
Now that we know middle class Americans are turning to Social Security more than ever, planning for the future is crucial. Proper estate planning, Medicaid planning and tools for reducing taxes can make a big difference for anyone going into retirement and concerned about their finances. This latest data takes on new meaning when you look at it from a total picture perspective. To learn more about retiring more comfortably with proper estate planning, contact our offices today.