Recent studies have found that saving for retirement has become a bit of a financial afterthought, as more Americans are actually saving for an upcoming vacation than they are for economic security in their golden years. In fact, a 2017 NerdWallet survey found that 56% of young women between the ages of 18 and 34 aren't saving for retirement at all.
But having a lack of fiscal foresight isn't limited to the young; a newly released Fannie Mae study has found there's been an increase in set-to-retire Baby Boomers who have outstanding mortgage debts to worry about.
Within the U.S., more than 10,000 people reach the standard retirement age of 65 every day. Baby Boomers (those born between the mid-1940s and the early-1960s) are now entering those years of retirement, but that doesn't mean they'll be able to retire from money woes. This new study found that the Baby Boomers who will soon retire are less likely to have paid off their mortgages than those from the generation before. Back in 2000, around 60% of retirement-age Americans owned their homes free and clear, but in 2015, fewer than 50% of Americans aged 65 to 69 did.
This data is worrisome to many experts, including the director of strategic planning for Fannie Mae's Economic and Strategic Research Group, Patrick Simmons.
In the report, Simmons notes: “Paying off the mortgage, once a widespread rite of passage for homeowners approaching retirement, has become less common in recent years… Concerns are mounting that the increased prevalence of housing debt among older homeowners could compromise financial security in retirement by expanding housing affordability problems, crimping essential non-housing spending, increasing vulnerability to home loss through foreclosure, or limiting the accumulation of housing wealth.”
There were 956,864 foreclosure filings and 203,108 home repossessions that occurred in 2016, and a widespread lack of financial security among seniors in retirement could increase these vulnerabilities. with mortgage debts to pay off, many seniors will have to work longer and completely change their spending habits to just afford to stay in their homes. In addition, prevalent housing debt amongst these retirees could actually make affordable housing that much rarer or limit housing wealth accumulation.
Although it's best to enter retirement without outstanding housing debts, there may be certain benefits that come along with carrying a mortgage as a retiree. Because mortgage debt has lower interest rates, it's often a better alternative to credit card debt. It's usually better than downsizing and moving to a rental unit, too; while your mortgage rate is likely fixed, your landlord can raise your rent at will. Plus, you are subject to a yearly tax deduction; while it may not be much by the time you near retirement, it can still make a difference.
Still, the benefits may not outweigh the risks. The Fannie Mae report emphasizes the need to pass along wisdom to younger Baby Boomers about their financial options to try to curb the issue. Interestingly, paying off home mortgages was found to be more popular among Boomers aged 50 to 54 in 2015 than among homeowners who fell in the same age bracket in 2000.
In the report, Simmons explains, “Educating younger boomers about options for shorter-duration mortgages that accelerate principal pay-down might increase the likelihood that they enter retirement with little or no housing debt.”