There is a worldwide trend that is growing for those who are close to or who are retiring or retired. Between 1990 and 2015 the percentage of 55–64-year old’s who owned their home without a mortgage fell from 70 percent to 47 percent. During the same period, the percentage of those carrying a mortgage debt rose from 12 percent to 31 percent. The balance were renters.
That leaves more 60 and 70-somethings with mortgage commitment. At
the heart of this issue lie questions over how best to supply safe and
affordable housing for seniors.
There is some research out of Australia that shows that those who
own a home without a mortgage spend around 5 percent of their retirement
income on housing, those who pay a mortgage or rent spend up to 30 percent of
their retirement income on keeping a roof over their head.
Many renters ultimately require government rent assistance. Renting
which is the main alternative to homeownership in retirement is often a more
precarious path. Renters need more money over time as rents often increase
faster than pension rates.
One idea is for those retiring is to use any savings they have to pay down or pay off any mortgage debt. This sounds great, but what will the person retiring live on if they cannot rely on their own retirement savings. Government pensions are designed to cover only a small percentage of what a person needs to live. So paying off a mortgage can be a bad decision, in the long run. But holding wealth in property is not necessarily a bad thing
One option is using that equity as an alternative retirement income stream by taking out a reverse mortgage, which I do not recommend but I think those who have home equity should start to use more of their housing assets in retirement by exploring alternative ways to get cash out. Otherwise, all you are doing is reducing your quality of life and leaving larger inheritances to the next generation. I still remember the bumper sticker I saw in the early 90’s that said, “I am spending my kid's inheritance."
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