Pros and Cons of Reverse Mortgages for Seniors

Many Baby Boomers have decided that they do not want to move to a retirement community or anyplace else when they retire.  Instead, they plan to age in place. They love their current home and neighborhood, and they have no intention of going anywhere.  For those retirees who have a lot of equity in their homes, most believe that they will have no problem continuing to live in their home.  After all, if home repairs are needed or medical bills pile up, they blithely assume that they can simply get reverse mortgages and tap the equity in their homes.  In some cases, this is a reasonable solution that has made it possible for thousands of seniors to remain in their homes.  However, in far too many situations this complicated type of loan has resulted in the loss of the family home along with all the equity that had been accumulated in it.  Before a homeowner considers this option, borrowers need to understand the advantages and disadvantages.

What are Reverse Mortgages?

Reverse Mortgages are loans that allow homeowners to borrow against the equity they have built up over the years. The homeowners do not make payments on the loan and the loan is not repaid until they either die or move out of the house. 

To qualify, the borrower has to be at least 62 years old.  They must either have paid off the house entirely or have a small enough mortgage that they can pay it off when they take out the reverse mortgage.  This loan is available to any homeowner, regardless of their income or credit rating. 

As mentioned, you do not have to repay the loan or even make payments on it until you either move out or die. However, you are expected to continue paying the annual property taxes and insurance bills on your home, as well as any homeowners' association fees and maintenance expenses.  If you fail to pay for the insurance and taxes, the company that gave you the reverse mortgage can declare you to be in default and foreclose on the home ... forcing you to move out.

Pros of Reverse Mortgages

There are advantages to these loans for some people, and they are certainly one tool that many have used to improve their quality of life as they age.

For example, if someone on a small fixed income is having trouble keeping up with their mortgage payments, a reverse mortgage can eliminate those payments for the rest of their life.  This may make it possible for them to continue to live in the home for years without house payments.

In addition, if someone has other debts such as large medical bills that they cannot afford, a reverse mortgage may enable them to pay off all their debts (including their remaining mortgage) and eliminate the payments.  Again, this can allow them to remain in their home for years and make it easier for them to survive on a small fixed income.

Cons of Reverse Mortgages

Unfortunately, not all the news about reverse mortgages is positive.  According to the April, 2013 edition of the AARP Bulletin, about 58,000 (or one in ten) of these mortgages end up in default.  Here are some of the problems:

People frequently take these mortgages out as soon as they can, often before they are even retired, and use the the money to finance their lifestyle.  If they face a real emergency in the future, they no longer have any equity left in their homes.  If the home requires major maintenance, such as a new roof, they are unable to come up with the money to make the repairs.  The federal government is concerned about these issues.  Skip Humphrey, who runs the Federal Office for Older Americans at the Consumer Financial Protection Bureau, has expressed concern that many borrowers are taking out these loans as soon as they turn 62.  The Bureau feels that these loans are more appropriate for people who are in their 70's or older.  (March, 2013 AARP Bulletin)

In addition to taking the loans out too soon, some people get into trouble with them because they cannot afford to pay the property taxes and insurance.  They may start out using some of the borrowed money to pay these bills during the first few years after they take out the loan.  However, eventually they run out of this cash and cannot borrow more.

There are problems with these loans for married couples, too.  If the older spouse takes out a reverse mortgage while the younger spouse is still too young to qualify, the younger spouse will be kicked out of the home when the older spouse dies.  This can be a serious problem for the younger spouse who risks losing their home and all the equity in it at the very time when they are also distraught  over the loss of their spouse.  Frequently, the home is only real asset the couple may own, and the result can be that the surviving spouse is left destitute.

Finally, many people do not realize that the up-front fees on reverse mortgages can be $10,000 or more, and these fees are financed as part of the loan.  

Proposed Changes to Reverse Mortgages

The AARP Foundation and some other organizations have filed suit to force changes in the ways that these mortgages are handled.  The Department of Housing and Urban Development (HUD) has also begun to make some reforms to these loans.  Among the proposed changes are:

Protecting surviving spouses;
Getting stricter about deceptive advertising;
Requiring a financial assessment before these loans are approved;
Requiring set-asides to cover future expenses such as taxes and insurance for a number of years.

Hopefully, the benefits of these loans will be preserved while some of the disadvantages will be minimized.


If you are interested in learning more about how to get the most out of your retirement planning, look through the five index articles listed below.  Each one contains links to nearly all the articles that have been written for this blog.

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement



You are reading from:  http://baby-boomer-retirement.blogspot.com

Photo of home courtesy of:  http://www.morguefile.com

Retire to Friendly Lancaster County, Pennsylvania

For those readers who hope to retire in the Northeast and are looking for charming small towns, low taxes, and appealing retirement communities, one area to consider is Lancaster County, Pennsylvania.  This county is in the center of Pennsylvania Dutch country and has a large Amish population.  Last year I wrote an article on one of the retirement communities in the county, named Garden Spot Village, and thought my readers would enjoy knowing more about this growing retirement mecca.

Reasons to Retire in Lancaster County

There are a number of reasons why retirees are being attracted to this lovely area.  The number one comment that I have heard over and over again is the small town friendliness.  For people who are used to living in some of the big cities on the Eastern seaboard, this is very appealing.

Lancaster County is also in a convenient location for people who do not want to move too far away from their grown children and grandchildren.   Depending on exactly where you settle within the county, it is approximately 90 minutes from Philadelphia, two hours from Washington, D.C., and three hours away from New York City.

Low taxes are another attraction for retirees.  The sales tax is 6% and groceries, clothing, prescriptions and over-the-counter medicines are exempt.  The state income tax is a flat rate of 3.07% of your taxable income, and your Social Security benefits and both private and public pensions are exempt from the state income tax.  This means that many retirees will pay little or no state income tax.  Property taxes vary throughout the county, so new residents may want to take that into consideration when they decide where to settle.  In one estimate I saw, the property taxes on a $167,000 house would be $6,805 in the city of Lancaster and only $4,041 in the Ephrata Township.  This is a significant difference, and should be taken into account when choosing where to live.  However, for people who are moving out of the large metropolitan areas in the East, just the fact that they can find homes in the $160,000 price range is a welcome advantage to living in Lancaster County.

Retirement Communities in Lancaster County

Currently there are at several communities for residents over the age of 55 in Lancaster County.  Here is a little information about each of them, as well as their phone numbers in case you want more detailed information or would like to arrange a visit.  Since this article is being written in 2013, interested readers will have to check on pricing, since it will change over the years.  However, the prices listed below will give you a general idea what you expect.

Traditions of America at Mount Joy
(717) 492-4529

New homes ranging in price from about $225,000 to over $300,000.  There is a clubhouse and pool.

Home Towne Square
(717) 283-5790

Developed by nationally known Landmark Homes, prices for single family homes range from about $250,000 to around $310,000.   There is a clubhouse as well as walking and hiking trails.

Heritage Strasburg
(800) 325-3030

Built by Charter Homes & Neighborhoods, this 55-plus community is on 28 acres conveniently located adjacent to the main street in the town of Strasburg, Pennsylvania.  Homes range from approximately $225,000 to over $300,000.

United Zion Retirement Community
(717) 626-2071

Another choice in Lancaster County is United Zion Retirement Community.  According to its website, it is "a friendly, faith-inspired Life Plan Community .... which offers independent living cottages and apartments, personal care, and skilled nursing services, including short-term rehabilitation."

Willow Valley Retirement Communities
(800) 770-5445

This is a continuing care retirement community where you can start out in an independent living apartment and gradually move into a skilled nursing or memory support facility as the need arises.  Residents pay a purchase price which ranges from $73,500 to $428,500 to move into the community plus a monthly fee of over $1,235. 

Garden Spot Village in New Holland
(717) 355-6000

You will want to read more about this popular community by reading last year's article which I have linked here: Garden Spot Village.  They offer a nice selection of retirement apartments, cottages and homes, with continuing care available when needed.  The apartments start at about $81,000, with cottages and townhomes going up in price to over $300,000.

Healthcare in Lancaster County, Pennsylvania

In addition to the retirement communities that offer skilled nursing facilities, there are also excellent hospitals and medical centers in the county.  Among them are Lancaster General Hospital, Lancaster Regional Medical Center (affiliated with Penn State Hershey Cancer Institute), Heart of Lancaster Regional Medical Center in Lititz, and Ephrata Community Hospital.

If you are interested in learning more as you prepare for retirement, you may want to use the tabs or pull down menu at the top of this article, or check out the index articles shown below.  Each one contains links to a wide variety of additional articles on those topics:

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement


Sources of information:

www.gardenspotvillage.com
Where to Retire Magazine, March/April 2013
www.uzrc.org
www.en.wikipedia.org

You are reading from the blog:  http://baby-boomer-retirement.blogspot.com

Photo of  North Duke Street in Lancaster, Pennsylvania courtesy of www.wikimedia.org.

What If You Can't Afford to Retire?

Once again a report on Yahoo! Finance relayed the grim message that the majority of Baby Boomers have so little savings that many of them believe they will never be able to retire.  In the article entitled "5 Things to Do When Retirement Savings Fall Short" by Lisa Scherzer,  the author reported that 57% of workers have less than $25,000 put aside in either investments or savings.  In her article, she focused on ways to cut your housing expenses in order to afford to retire.  However, while this is a major area where Baby Boomers may want to reduce their expenses, there are many other actions they can take, as well.

Despite the alarming numbers we keep hearing that indicate approximately three out of five Baby Boomers cannot afford to retire, the purpose of this blog is to help people explore their options and discover the many ways they actually can retire, no matter how bad the numbers sound.  I want to help people have a fun and fulfilling retirement, regardless of their financial situation.

In fact, many of us will have to retire whether we think we can afford to or not.  While a low savings rate may cause us to feel that we will never be able to stop working, the truth is that most of us will need to leave our current jobs sooner or later.  Some types of careers have mandatory retirement ages; in other cases, health issues may force us to stop working full-time earlier than we expected.  Most of us cannot rely on the idea that we will simply work until we drop.  We need to have some sort of a plan.  Fortunately, there are actions you can take that make it possible for nearly everyone to retire someday, even if they have very little money in savings.  You may not be able to stay in your current living situation or drive the types of cars you currently own, but most people have discovered that there are a number of ways they can simplify their lives and still have a happy retirement.

Where to Make Cuts

The first thing we all need to do is figure out where we can cut our expenses.  The Social Security Administration recently reported that people who are over 55 generally split up their expenses in the following ways:

35 % to Housing, Utilities and Related expenses
14 % to Transportation
13 % for out-of-pocket medical expenses
12 % for food
21 % for state income taxes, travel, debt servicing, insurance, clothing, and other expenses
05  % for entertainment

Your personal expenses may be a little different.  The first step you need to take is to list how much you currently spend in the same categories and see how your expenses compare.

Cut Your Housing Expenses

One of the suggestions that was made by Ms. Scherzer in her article was to move to a state with a lower cost of living.   In particular, she recommended Florida, Nevada, Texas and Washington because those states do not have a state income tax.  In comparison, California has a 9.3% tax on the incomes of single people who earn more than $46,766 a year.  She also suggested that some people may want to move to another country with a lower cost of living.  These suggestions are being followed by thousands of Americans, as we have discussed in this blog in the past.  At the end of this article, you will find links to a number of articles about many of these alternative retirement locations.

However, not everyone wants to move somewhere totally new. As I mentioned in my last blog post entitled "Age in Place Villages Provide Resources in Your Neighborhood," many people wish to stay close to their families when they retire.  Therefore, pulling up roots and moving to another location may not be a desirable option.  In fact, if you spend a lot of money traveling to see your loved ones, there may not be much savings at all in a distant move.

This does not mean that it would be impossible for you to cut your housing expenses.  Here are some other suggestions:

Move to a much smaller and cheaper home
Rent out a room in your current residence
Refinance your current home to a lower monthly payment
Get a roommate, particularly a close friend or relative
Move in with your adult children (preferably in your own attached apartment)
Apply for Section 8 subsidized senior housing, if your retirement income is exceptionally low.

This last choice benefits many low-income retirees every year.  A friend of mine recently moved his mother into a senior apartment complex here in Orange County.  While rents for one bedroom senior apartments in the complex typically run $1300 a month, she will be able to substantially reduce her costs by using Section 8 vouchers.  She qualifies for this help since her Social Security benefits only amount to $1400 a month. 

We have other friends who are also benefiting from Section 8 vouchers.  Two recently retired Baby Boomers we know were both successful businessmen in their younger days.  However, due to financial setbacks, they both lost most of their money just prior to reaching retirement age.  Both of them applied for and received subsidized senior apartments in a safe community where they feel comfortable, independent and able to remain near their families and friends.

If you are afraid you cannot retire due to financial setbacks, contact the state housing authority in your area to find out if you qualify for assistance.  In addition, contact you local Social Security office to see if you qualify for Supplemental Security Insurance, food stamps, assistance with your Medicare premiums, or other benefits.  If not, you may want to try one of the other options listed above in order to cut your housing expenses.  Once you have cut your housing expenses, you will also want to reduce your other expenses, as well.

Cut Your Transportation Expenses

If you are one of those people who spend 14% or more of your monthly income on transportation, this is an area where you may be able to make cuts.  If you are a couple, do you need two, large cars?  Is there reliable bus service in your area?  Can you get by with a Smart Car, a golf cart or another inexpensive vehicle to use as your primary vehicle or as a second car for your spouse?  If you are no longer commuting to a job, you may discover that you can easily get by with a much less expensive vehicle to own and maintain.

Cut Your Medical Expenses

One woman I know is married to a doctor and they have always chosen to use a PPO insurance plan.  Recently, she told me that they had switched to a low-cost HMO Medicare supplemental plan because all the doctors they saw through their PPO were also listed in the HMO.  She saw no reason to keep paying the higher premiums. 

In my case, I recently joined Kaiser Healthcare.   Kaiser's Medicare Advantage plan is listed as a 5-Star program, yet the premiums are quite low.


Cut Your Miscellaneous Expenses

As mentioned above, one way to lower your cost of living after retirement may be to move to another state where there are no state income taxes.  However, another big expense that falls into the miscellaneous expenses category is debt servicing.  Are you still paying off student loans to put your kids through college; do you have large credit card bills, or similar expenses?  If so, you will want to pay off or renegotiate these loans so that you can retire.

You'll notice that I have not mentioned cutting your entertainment expenses.  Most retirees spend a minimal amount of money in this area.  What is the point of retiring if you cannot spend any money at all for entertainment?  While you don't need to go overboard, everyone should budget a little money in this category, even if it is just for a movie with a friend once a month.

Some other miscellaneous expenses that fall into this category may include items such as life insurance or long-term care insurance.  If you are single and no one depends on you, you may decide that you no longer need the life insurance.  On the other hand, long-term care insurance is almost certainly worth keeping.  It will allow you to have your future expenses covered should you need a home health aide or skilled nursing care in the future.  If you have been fortunate enough to already have one of these policies, I would not let it lapse.  It could save you a substantial amount of money in the future.

Get a Part-time Job

As mentioned many times in the past on this blog, there are a number of ways to earn money after retirement.  You might want to work part-time, give lessons, write books and articles, babysit, or run errands for your elderly neighbors.  You may also want to work in your current field, but cut back on your hours.  Any money you earn can go a long way towards having a more comfortable retirement once you retire from your current, full-time career.

Your Personal Retirement Plan

The point of this article has been to encourage you to not to give up on your dream of retiring from your full-time job in your late 60's.  Look through the suggestions that have been made here and pick a few that you think will work for you.  Begin to implement them as soon as you can, even before you stop working.  In this way you will have the confidence to know that one of these days you can take that giant leap of faith and retire from your job one day one day soon.

 
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You can find additional retirement information ideas by clicking on the tabs or pull down menu at the top of the page or checking out the information you will find in the index blog posts below.  Each of these articles contains an introduction followed by links to a number of articles related to that topic:

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement


You are reading from the blog:  http://www.baby-boomer-retirement.com

Photo of retirement ribbon courtesy of www.morguefile.com

Age in Place Villages Provide Resources in Your Neighborhood

When I first heard the term "Age in Place Village," I thought I was hearing about a new type of senior housing.  However, I was surprised to learn that this is actually a system for organizing local resources to make it easier for seniors to remain in their current homes and neighborhoods. Aging in place refers to people who decide to continue to live in their current home after they retire and stay there for as long as possible.  When these people are connected to local service providers and senior centers, it often makes it easier for them to remain in their homes.

In the past, aging in place often meant that people became isolated.  As their long-term neighbors moved away or died and new, younger families moved into the neighborhood, many elderly people simply began to hole up in their homes with little or no social interaction with the community around them.

Where to Find Age in Place Villages

According to a U.S. News article dated April 4, 2013, the concept of Age in Place Villages began in 2001 when several senior citizens in the Beacon Hill area of Boston decided that their neighborhood needed to have more support services if seniors were going to be able to successfully and happily live out their lives in their current homes.  They called their network of support systems a "village."  The original Age in Place Village was very simple, primarily consisting of neighbors who were willing to check on each other and help each other out, when needed.

The village concept has become more sophisticated and is now spreading across the nation.  Today, the Beacon Hill Village has a board of directors and an executive director.  Their goal has also expanded beyond the idea of simply making it easier for people to remain in their homes.  Today they also strive to provide more community activities so that aging citizens can find companionship and fun activities in their neighborhood, providing them with some of the same benefits they would find in an over-55 retirement community.

Rutgers School of Social Work has studied the village phenomena and they concluded that there are now about 85 organized Age in Place Villages located around the United States and 120 more are planned for the near future.

According to the Age in Place website, the goal of the village concept is to help people remain active, independent and social in the neighborhoods that feel familiar to them. The movement has now also formed a National Aging in Place Council called NAIPC.

You can find local chapters of NAIPC in these areas, as well as many others:

Atlanta, Georgia
Baltimore, Maryland
Boston, Massachusetts
Central Florida
Central  Virginia
Jackson, Mississippi
Long Island, New York
Minneapolis - St. Paul
Orange County, California
Providence, Rhode Island
Sacramento, California
Seattle, Washington

The Resources Provided by the Villages

One way that these villages succeed is by providing senior citizens with access to local service providers who can help them remain in their homes.  While there are many types of services that can benefit seniors, depending on their needs, some of the choices include adult day care services, money management and credit counseling, in home care, home accessibility consultants, physical therapists and much more.  These organizations can also help seniors learn how to find local transportation assistance and make their homes more senior friendly.

As a resident of Orange County, California, I have known people who have taken advantage of some of the transportation assistance, adult daycare services, in-home care providers and similar programs.  The network of senior centers that are dotted throughout Orange County have helped many senior citizens stay active.  Before I moved to my current over-55 retirement community, I took yoga classes at a senior center in Irvine, California.  While I was there, I observed other senior citizens who were enjoying low cost lunches, taking exercise or art classes, playing bridge and participating in many of the same activities that are available in my retirement community.  These senior centers have made me aware of the fact that many people can remain in their current communities and still stay connected with their peers, get out of their homes, make new friends and participate in a variety of activities.


If you are interested in aging in place, you may want to contact the NAIPC at www.ageinplace.org.  The information they provide will make your aging experience go smoother, since they strive to help senior citizens find the resources they need to successfully remain in their homes as they age, even if they need a little help in order to achieve this goal.

If you need assistance with your retirement planning, or you have not made up your mind where you want to live after you retire, you may be interested in using the tabs or pull down menu at the top of this article or checking out the index articles shown below.  Each index articles contains a short introduction followed by links to a number of other posts that have been made to this blog about a wide variety of topics.

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement

You are reading from the blog:  http://www.baby-boomer-retirement.com

Photo of cottage courtesy of www.morguefile.com


Resources:


http://homes.yahoo.com/news/what-seniors-should-expect-from-aging-in-place-villages-215144777.html

http://www.ageinplace.org

http://www.ageinplace.org/village_concept_promotes_aging_in_place_%E2%80%93_aging_well_magazine.aspx