The best routes for retirement
Baby boomers own the most significant portion of housing value nationwide. Data from the Federal Reserve shows that total real estate wealth in the fourth quarter of 2023 was $44.84 trillion, and boomers claimed an impressive $18.65 trillion (42%) share of that value.
A baby boomer is someone born between 1946 and 1964. This generation emerged after World War II during a period of significant population growth known as the baby boom. Baby boomers witnessed economic prosperity, technological advancements, and cultural shifts during their formative years. They remain influential due to their large numbers and their impact on politics, culture, and the economy.
Since baby boomers make up an impressive 40% of the US population (PewResearch.org, 2024), what they do with their homes and home wealth significantly impacts our economy. Older homeowners have choices regarding what to do with their homes.
Age in place
Interestingly, more than three-quarters (78%) of older American homeowners plan to stay in their current homes as they age. This is the most common aging plan for boomers. According to Redfin, this preference is driven by financial considerations, including current mortgage rates and home prices being too high for many to consider moving elsewhere. Aging in place is already contributing to the housing shortage and is likely to continue.
However, owning a home involves expenses like property taxes, insurance, and maintenance. These costs can chip away at the value you can extract from your home and significantly impact retirement savings. Most people who make this choice need to evaluate their retirement income to make sure this plan makes sense for the long term.
Some homeowners might consider staying in their homes and renting out part of it or adding Accessory Dwelling Units (ADU) to generate a retirement income stream. Using the equity in the property, a homeowner could renovate to accommodate renters or build an “in-law” apartment. In many cases, the aging homeowner may need to renovate the home to accommodate themselves as they age and start to experience mobility and health issues. There are a lot of choices with renovation and home equity loans, reach out to an knowledgeable loan officer today to learn more!
If they decide to stay in the home, some baby boomers are taking a second look at reverse mortgages. Reverse mortgages allow older homeowners to convert home equity into cash, supplementing retirement income or covering expenses like home repairs or medical bills. Baby boomers have historically had negative feelings toward reverse mortgages because of some unscrupulous lenders back in the day taking advantage of older Americans. Today, reverse mortgages are regulated and safe. A homebuyer’s workshop and certificate are required to proceed with the loan process to ensure the homeowner fully understands the pros and cons of a reverse mortgage.
Reverse mortgages allow homeowners aged 62 or older to access a portion of their home’s equity to obtain cash (without having to relinquish the home’s title, sell it, or move). They are very different from traditional mortgages, in which the buyer pays the lender monthly. With this unique type of mortgage, the lender makes payments to the homeowner instead. Thus, the term “reverse.” As time passes, the home’s equity decreases while the homeowner’s debt increases. The loan is paid off upon the sale of the property.
Some families are looking into multi-generational housing as an option that allows boomers to age in place while also allowing younger families to become homeowners. Multi-generational housing, a unique living arrangement where multiple generations (such as parents, children, and grandparents) share a household, is gaining popularity. It’s not just a solution for families trying to navigate the challenging housing market as homebuyers but also a way to foster strong intergenerational bonds, creating a sense of community and support for our aging population. This living arrangement can also provide security and stability, as financial burdens and responsibilities are shared among family members.
According to a separate Redfin analysis, baby boomers staying put is one reason young Americans are having a hard time finding a family home. The analysis found that empty-nest baby boomers own 28% of three-bedroom-plus U.S. homes, while millennials with kids own just 14%. Baby boomers have an outsized impact on the housing market because they’re most likely to own homes: Nearly 80% of boomers own the home they live in, compared to 55% of millennials.
Sell
Many baby boomers decide to sell their family homes. Since property values have risen significantly, selling a larger home has strong financial benefits. However, downsizing is not easy for many reasons. Dealing with memories and acknowledging change can be an emotional experience, but for others, it can be liberating to walk away from a big home and all the responsibilities of maintaining and paying for it.
Selling your home positively impacts the economy in many ways. Real estate contributes significantly to the U.S. economy, accounting for nearly 17% of the GDP. Each home sale generates about $113,000 in economic impact nationwide. This includes expenditures related to home construction costs, real estate brokerage, mortgage lending, and title insurance. At the same time, it addresses the overall problem of the housing supply shortfall and makes more homes available for younger generations looking to buy homes. The National Association of REALTORS® estimates that every home sale creates two jobs. For every 1,000 home sales, approximately 2,000 jobs are generated.
Relocate
If you want to remain a homeowner, consider relocating to an area with lower housing costs. By doing so, you could pocket much of your equity. For example, moving from an expensive city like Boston to a more affordable location could help you stretch your retirement funds. Another option that is gaining in popularity is relocating to an over-55 lifestyle community. Over 55 lifestyle resorts could be part of the solution to the nation’s housing crisis by freeing up more properties for families. Retirement communities have seen a significant increase in popularity as the population ages and people start to downsize.
How do baby boomers achieve their retirement goals?
Deciding when and where to move for baby boomers can be an emotional decision. 78% of baby boomers questioned would prefer to age in place. The next most common plan is moving to a 55+ community; one in five baby boomers are considering moving into a 55+ community or have already done so. Next comes moving in with adult children (multi-generational living). One thing is certain: baby boomers will have a long-lasting impact on the economy and housing market for years because their average life expectancy is now around 77.5 years (Investopedia.com, 2024), and the last baby boomers will not be 65 or older until 2030. Remember, each person’s situation is unique, so it’s essential to evaluate your specific circumstances, consult a mortgage loan officer if your home is an integral part of your retirement strategy, and make informed decisions about using home equity for retirement.
Sources:
Baby Boomers Age in Place, Redfin.com
National Association of Realtors
Investopedia
