According to a recent Ameriprise Financial report, 47% of people between the ages of 50 and 70 plan to use the proceeds from the sale of their homes to help finance their retirement. That percentage is up significantly since the 2000s.
The report also stated that – despite the big decline in home values since the crash – the national average is around a 27% drop. Using your house to boost your retirement is still a realistic goal for Boomers who stayed put for the past 10 years. The ones who played the flip or trade-up game should not count on this as an option.
What is most surprising, though, is that, not including their home value, the average person who participated in the survey had at least $700,000 in assets. Seventy-eight percent had at least $250,000 saved.
$700,000 and the equity from their home? They must be planning on quite a retirement.
Figure between 4% and 6% in income from the $700,000 principal, Social Security, plus another 4% annually drawn from the principal… That’s a lot of money!
The big issue, though, is the huge percentage of people who cannot count on any equity in their home and instead will be entering their golden years with mortgage debt.
Since 1989, the percentage of people carrying a mortgage into retirement has risen from 37% to 54%. It is the classic “rob Peter to pay Paul” scenario, where these folks will have to pull money from retirement assets and income to make the house payment each month.
If you are among the majority who will carry this big monthly bill past your work years, the decision to either pay down a mortgage or fund your nest egg at a higher rate is one you need to take a hard look at.
The most obvious answer is to take advantage of current low interest rates and refinance. That, of course, is assuming you haven’t been caught in what is now an all-too-common scenario of a short sale, repossession, or some other crash-related situation where your credit has been dinged.
If you have the credit rating and the income-to-debt ratio banks are looking for, lenders are literally throwing money at refis with rates as low as 3.25%. The process is high speed and requires none of the usual mountain of documentation required for original mortgages.
The savings you can realize by reducing your interest cost by three or four percentage points is significant. On a $250,000 mortgage, if you go from a 6.25% to a 3.25% mortgage, the monthly savings are almost $500. It’s not a fortune, but for most folks it will pay a lot of bills.
Take a realistic look at how much debt you will be carrying into retirement, and do what you can now before rates run back up to cut the cost.
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