As the first wave of Baby Boomers make their accent into the peaceful tranquility and leisure serenity of retirement, many are faced with financial difficulties. Soon-to-be retirees spend their entire professional careers paying into social security and a personal 401k account for this very moment. But there are two fundamental flaws with that common strategy: overextended government obligations and a razed stock market.
Following 2008’s stock market and housing calamity that erased the lifelong savings of millions of Baby Boomers, this unique group of aging American’s are now forced to make some really tough decisions, and still many don’t even have a choice: they will simply need to continue working. Employer-matched retirement savings accounts that are heavily invested in the stock market like the 401k seemed to work great for years, but that strategy is now coming to question.
Today’s 65 year-olds would presumably be able to depend on social security and government-backed entitlement programs to carry them through retirement as well, but with mounting deficits and decreasing tax revenues, the best many retiring American’s can hope for is a social security benefit with a check amount that’s just one step above “pithy”.
So, Baby Boomers work their entire lives to – surprise – find out they now cannot afford to retire. Some Boomers will wait to draw on their social security benefits for a number of years, a strategy that allows them to take home more each month when they finally do accept that first payment. Unfortunately though, few can afford the luxury of waiting 8 or 10 more years.
Other Boomers will be forced to re-enter the job market, and with labor conditions the way they are today, the prospects of finding an employer who is willing to extend a job to an over-60 candidate seems bleak. Indeed, despite progressive protections against age discrimination by employers, that discrimination very much exists. Many unemployed Boomers may simply become discouraged and drop out of the labor market before finding even a part-time job.
However, there is a solution, according to Professor Alicia Munnell. She’s the director of the Center for Retirement Research at Boston College, and she recently spoke with Robin Young from Here& Now, a public radio news talk show syndicated on National Public Radio. The two spoke about the prospects for retirement and the different options that are available to Boomers who are facing tough financial predicaments.
The solution Alicia had suggested was for Boomers to consider tapping the equity in their homes through a reverse mortgage. As a proponent for the sophisticated financial transaction that allows a homeowner who is 62 years of age or older to convert the equity in their homes into a cash loan, Munnell says she likes the reverse mortgage. She also alluded to the influential roles reverse mortgages could play in coming years by saying, “people are going to need to tap their home equity during retirement.”
Munnell mentioned some of the benefits of a reverse mortgage including the ability for the borrower to live in their own house while receiving a regular, scheduled income or lump sum of cash. In return, the bank owns the home when the borrower passes. Munnell warned that reverse mortgages may negatively and wrongfully be rousing an emotional conflict for the borrower who doesn’t want to give up their home. But in general, the professor said, a reverse mortgage is highly rewarding for the borrower who can now enjoy their retirement rather than worry about it with the cash the loan provides.
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