Whatever Happened To Retirement Security?

Fewer and fewer of us are “retiring,” if by “retirement” we mean a period of time when we no long work and live off a combination of investment income, low debt and Social Security.

“Americans at the leading edge of the postwar baby boom will hit 65 next year,” says a new study from Standard & Poors. “But will they ever be able to slide into retirement? Declining wealth, stemming from lower stock prices and falling home values, has hurt older households. In fact, Americans lost 18% of their net worth in 2008, and the decline disproportionately hit the households of those nearing retirement.”

Little Savings

The new study — “Pensions: Can We Ever Retire?” — says most Americans of retirement age will keep working simply because they have no option.

“Most Americans in the pre-retirement age group haven’t saved enough money to provide for an adequate retirement. At the end of 2007, the median household in the 55-to-64-year-old age group had total financial assets of only $72,400, according to the 2007 Survey of Consumer Finances (SCF), which the Federal Reserve conducts every three years. Based on the performance of financial markets over the past three years, that number is probably now down to $65,000.”

Assets

While pensions have become more difficult to get and more difficult to keep, asset values have begun to creep up.

Standard & Poors reports that “fortunately, wealth is beginning to recover from the 2008-2009 bear market. Total household net worth has risen to $54.6 trillion (492% of disposable income) in the first quarter, according to the Federal Reserve’s Flow of Funds accounts, up from $48.3 trillion (448% of income) one year ago. However, it’s still far below the $64.4 trillion (650% of income) at the end of 2007.”

The returns on our assets remain questionable, however. Home values in a number of states — California, Nevada, Arizona, Florida, etc. — remain depressed as a result of toxic loans which made the short-term highs of 2007 possible. Moreover, returns on cash in retirement accounts are fairly close to zero as of this writing.

Less Retirement

“Through history,” says the report, “people didn’t stop working until they were unable to work. When the Social Security Act of 1935 set the retirement age at 65, life expectancy at birth was 62 years; today, it’s 78. At age 65, today’s average male can expect to live another 18 years, and the average woman 20 years. The idea that older workers are entitled to leisure as a reward for 40 or so years of work really didn’t become prevalent until the 20th century, mostly after World War II (coinciding with the rise of golf as a sport). Perhaps Americans might have to shift their thinking and realize that 20 years of retirement after 40 years of work is too much, and that they might have to work well past 65.”

Reverse Mortgages

You look at the realities above and it quickly becomes apparent why the interest in reverse mortgages remains so high. Basically, it’s a way in many cases to go from owning a home with a monthly cost for principal and interest to owning a home without such costs. Knock out monthly mortgage payments with a reverse mortgage and suddenly a pension goes much further.

As always, homeowners should look at reverse mortgages with care and shop for the best possible amounts, rates and terms.

This entry was posted on Wednesday, July 14th, 2010 at 12:48 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.