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Retirement Yin Yang

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Americans 65+ w/MortgageNearly a third of older homeowners are entering their twilight years saddled somewhat with a mortgage. Compounding the struggle is half of retirees without a pension, just drawing mainly on Social Security benefits, will receive less than 65% of their pre-retirement income.

How you position your mortgage before retirement can be very critical to your later years. For example, tapping into home equity to pay off credit cards could be a costly mistake, potentially costing you your home.

Also, it is very critical to calculate your post-retirements bills so you do not fall back into the “robbing Peter to pay Paul” syndrome.

Our good friends at the Consumer Financial Protection Bureau offer you three retirement steps.

1. Plan for your mortgage pay-off date

For most older homeowners, maintaining their home is their largest expense during retirement, especially if they carry a mortgage. Making your mortgage pay-off date a part of your retirement plan will help you to manage and afford your housing costs.

For some, owning their home free and clear allows them to handle their monthly expenses and have a reserve on hand in case a financial emergency arises. Aiming for a mortgage payoff date that is earlier than your planned retirement age can help you manage expenses if your income decreases unexpectedly. While carrying a mortgage in retirement may not be a hardship for everyone, it’s always a good thing to include your mortgage pay-off date in your retirement plan.
Before paying off your mortgage, you may wish to discuss any tax and estate implications with your attorney, tax accountant or other financial professional.

2. Be careful when getting a new mortgage, refinancing, or tapping into your home equity

Many consumers take on new loans or refinance their existing mortgages to get a lower interest rate and/or monthly payment. Pay attention to the term of your new mortgage as it can affect your retirement plan. For example, taking on a new 30-year mortgage when you are nearing retirement can become a hardship later. Consider choosing a shorter-term mortgage, such as 10 or 15 years, when refinancing or buying a new home when you are close to retirement. You’ll have higher monthly payments now, while you’re still working, and be less likely to still have a mortgage in retirement.

If you’re considering getting a home equity loan or a reverse mortgage, you should revisit your retirement plan. Some people use their home equity to pay for varied expenses, such as home improvements, consolidating debt, medical bills or college tuitions. Consider how you will pay for unanticipated expenses in the future if you draw down on your equity now.

3. Estimate your retirement income and expenses

Generally, people have less income when they retire. Retirement income (from pensions, social security, annuities, and other savings) typically won’t fully replace your work earnings.

Knowing your expected retirement income and expenses is important, especially if you’re retiring with a mortgage. You’ll be able to plan and budget for your mortgage payments and other living costs, even if your taxes, insurance, and other housing costs go up.

Some expenses to keep in mind:
• Older consumers often spend more for their health care and/or long-term care needs later in life than in their younger years.
• Monthly mortgage payments on top of paying other monthly living expenses can pose a hardship or prevent you from meeting your retirement lifestyle goals. In 2011, older homeowners with a mortgage spent $800 more per month than their counterparts with no mortgage.
• If you plan to age in your home, you may need to pay for home modifications.

RESOURCES: http://www.dol.gov/ebsa/pdf/savingsfitness.pdf

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