Yahoo Finance 4 Ways Baby Boomers Become ‘House Poor’ in Retirement
There are approximately 72 million baby boomers alive in the United States, as of 2019. Many of those boomers are currently “house poor,” meaning they’ve bought a home that prohibits them from affording much outside of paying for that property. There’s a general rule that your housing costs shouldn’t exceed 30% of your income. When you’re house poor, those costs definitely exceed that amount.
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Those who are house poor struggle to pay for their mortgage payments, property taxes, maintenance, utilities and insurance, and might be close to not being able to afford them at all. Why is this happening to baby boomers specifically? Here’s what financial experts say is causing this generation to become house poor.
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They’re Resistant To Downsizing
“Baby boomers, who’ve typically seen their homes appreciate over the years, might develop a strong emotional attachment to their houses. They may resist downsizing or relocating, thinking it’s an integral part of their identity or a legacy for their children,” said Shane Adkins, CFP® and financial advisor at Broadway Graham Wealth Partners.
Because emotions get in the way, baby boomers don’t want to give up their homes, even though they may no longer be bringing in enough money in retirement to afford it.
Adkins strongly recommended taking a good look at your needs before staying in a home that isn’t financially feasible for you.
“If your kids have flown the nest, maybe a smaller home or downsizing is worth considering. It’s about finding a balance between enjoying the space you need and not overburdening yourself with maintenance and costs. The main idea is to make your home work for your retirement, not the other way around. If your house is gobbling up too much of your resources, it might be time for an honest conversation about what truly makes sense for your golden years.”
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They’ve Refinanced Rather Than Paying Off the Mortgage
“Over the last number of years, house prices have gone up tremendously and one of the biggest messages portrayed in the media has been to refinance and take out generated equity or to take a home equity line of credit,” said Sebastian Jania, a director at Ontario Property Buyers.
Jania said he’s seen many homeowners who didn’t pay off their homes for decades, and instead took on more debt by remortgaging.
“If those individuals had simply stayed the course of paying down their house without changing their approach, they would have had their homes paid off and would have had lots of disposable income for retirement.”
They Won’t Rent Out the Home
A good way to earn some more money to pay for home-related costs is to rent out a portion of your home.
“The way to make a house an asset is to either rent out some portion of the house such as a bedroom or a second unit, or to leverage equity from the house to generate more income,” Jania said.
Baby boomers might have enjoyed the entire home for themselves and their family, so don’t consider renting out part of it later in life, but it might be the only way to recoup some of those home expenses.
They Dip Into Their Savings To Keep the House
Generally speaking, your home should be paid for based on your income. You shouldn’t have to deplete your savings every month trying to keep your home afloat.
“The stock market can turn quickly. Inflation can make everyday items more expensive and deplete your savings quicker than you expected,” said Aaron Gordon, the branch manager and senior mortgage loan officer at Guild Mortgage.
Gordon said that as baby boomers’ earning potential decreases, they should still be able to make payments on their homes for the foreseeable future.
“You don’t want to be in a position where you’re draining your life’s savings to maintain your lifestyle or home. Baby boomers should make sure their home is affordable for their current economic situation and will be affordable in the years ahead.”
Gordon said if you’re really struggling to pay on your house, you might consider a reverse mortgage. Reverse mortgages allow you to borrow money from the bank based on your home equity.
“Reverse mortgages get a bad rap but it’s unfair. If you are 62 or over, a reverse mortgage, which you can use to buy a new or refinance a current home, potentially gets rid of your mortgage payment for life.”
He said, with a reverse mortgage, there is the possibility that your heirs will owe money on the home after you pass away, but it depends on how much you borrow in your lifetime. Your best bet is to talk with a mortgage lender and financial advisor to see if it’s the best option for you.
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