I’ll need a place to live in retirement. And that means I’ll need to either rent, pay a mortgage or live in my son’s spare bedroom unless I can own my home outright by the time I collect Social Security at age 67. According to a recent report by the Consumer Financial Protection Bureau, mortgage debt is a concern for a growing number of retirees. An article by Wall St. Cheat Sheet made me realize how serious mortgage debt in retirement can be. Considering a lot of my Generation X peers are buying their step-up homes right now, it’s worth considering how a mortgage would affect us 30 years from now.
Getting into a lifelong habit
I don’t want to be in debt when I’m older. I wish I didn’t have any debt now. According to the report, 65 percent of the older baby boomers ages 65 to 74 have debt with 40 percent of it being attributed to mortgages. If I give into the temptation to sell and buy a nicer home now, I’ll have a mortgage until I’m 74. Even if I kept working until age 67, I’d have to carry a mortgage for 7 years in retirement.
Looking at various financing terms
I could take out a 15 year mortgage. At my age, I’d be paying on my mortgage until age 59. The data from the report showed the median amount of money senior citizens owe on their mortgages is now at $79,000, an 82 percent increased compared to 2001. Since the value of our home went down significantly during the housing downturn, we would have to take out at least $175,000 to add to our equity of about $75,000 to buy a home for about $250,000. Getting out a 15-year loan on a $175,000 mortgage would nearly double our mortgage compared to what we have now.
Living on a not-so-fixed income
In retirement, we will not really have a fixed income in the traditional sense. It used to be retirees could depend on a certain pension check or Social Security check. Members of Generation X may receive cuts to their Social Security benefits. We may receive one amount one year and another amount the following year. With the stock market and economy as unpredictable as it is, we can’t count on our retirement accounts. I can’t count on dividend-paying stocks to continue to pay dividends. If I do receive dividends, the amounts are always changing depending on how much profit the company wants to share with shareholders. I rather not have the fixed expense of a mortgage when I will have not-so-fixed income.
Having wiggle room
The study showed retired people with mortgages pay a median amount of $1,257 on housing. Meanwhile, people without a mortgage pay only about $434 on housing. At this point, we would only owe $200 for our taxes and insurance and about $200 for utilities a month compared to our current $925 a month mortgage payment. Thankfully, our mortgage will be paid off by the time I’m about 56 even if we stop paying any extra on it. It’s nice to have the financial wiggle room to pay extra now as well as the breathing space when we are retired to be able to travel.
It used to be that retirees could just sell their homes if they wanted to move or get out of a mortgage. With the housing market as unpredictable as it is, I’m not willing to bet that I could sell my step-up home for the same or more than I originally paid. By retiring in place, we won’t be forced to work longer or worry about losing our home to foreclosure when we are the most financially vulnerable.
More from this contributor:
My Gen-X Plan to Survive Partial Retirement
Why Gen X Needs to be Mortgage Free
Dealing with Baby Boomer Parents in Debt