Danger For Those Who Still Have a Mortgage During Retirement
Part of the problem is the fact that most people are not paying off their mortgages before they retire. In fact, the Consumer Finance Protection Bureau reports that about 30% of Baby Boomers still have a mortgage when they retire. This has resulted in a higher mortgage delinquency rate for people over the age of 75. The average person over the age of 75 who still has a mortgage currently owes about $80,000. This can be an overwhelming amount for someone who hasn't worked in 5 or 10 years and is dependent on Social Security and a meager amount of savings.
The problem with owning a home when you are on a fixed income with limited resources is that, in addition to the mortgage, you will also have other housing expenses ... and many of them increase annually. Among those expenses are property taxes, homeowners insurance, repairs, cleaning and lawn work. In addition, utilities on a large home are likely to be higher than those for a much smaller property. Furthermore, people who may have been able to do their own cleaning, repairs and lawn work when they were in their 60's, may find that they must pay to have these things done as they age. As a result, the cost of home ownership may rise much faster than inflation.
Other Financial Risks Faced by Retirees
When housing costs are added to the fact that many people retire while still owing student loan debt, credit card debt and, sometimes, bills for medical expenses, retirees are advised to make significant adjustments to their lifestyles before they stop working. If they don't, they risk going through foreclosure and bankruptcy later in life, when it could be even more traumatic for them.
If you are doing your best to set up a realistic budget for your retirement, you will want to read this report by the Social Security Administration: Expenditures of the Aged Chartbook - 2010. It contains a detailed breakdown of how people spend their money after retirement.
While you will want to read the chartbook for yourself, I wanted to mention that it shows the three largest expenses for retirees are housing, transportation and healthcare ... and those are all expenses that have been rising rapidly over the past decade.
The solution for high housing costs is obvious. Many financial advisers recommend that people downsize their lifestyle prior to retirement. This may mean moving to a smaller home, condominium or townhome. For some people, they may wish to take in a boarder or sell their home and rent ... letting someone else deal with repairs and lawn care.
Whatever you decide is the right approach for you, make sure you are taking your housing costs into consideration when you plan your retirement.
If you are looking for additional retirement information and ideas about downsizing, click on the tabs at the top of this page. They will link you to hundreds of additional helpful articles.
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