• Middle-Aged Boomers Overinvested in Home Equity

  • by Danny McGuffin

A recent study by Bankers Life Center for a Secure Retirement suggests what many already suspected: as baby boomers approach retirement, they’ve heavily invested in their home equity at the expense of investment assets, a trend which could have far-reaching consequences for their retirement years.

The Middle-Income Boomer Retirement Gap: Savings, Education and Advice compiled data gathered from 1,000 boomers aged 50 to 68 with household incomes of $25,000 to $100,000. Forty-five percent of the boomers surveyed were already retired or semi-retired.

Changing Attitudes and Retirement

It probably comes as no surprise that the majority of boomers plan to work past the traditional retirement age of 65, either for financial reasons or simply because they enjoy their work. Most still plan to retire after they’ve reached their financial goals, which can make things tricky.

Middle income baby boomers are aware they need to save more for retirement than previous generations, as the average lifespan has risen since their parents retired. Accordingly, they see $500,000 in investable assets as the minimum needed for a secure retirement.

Only thirteen percent of those surveyed had investment assets in excess of $500,000. The median value of reported investment assets ranged from $25,000 to $100,000–a far cry from half a million dollars.

At the same time, the average boomer’s home equity value ranged from $100,000 to $250,000, resulting in fifty-six percent of those surveyed having more value in their equity than their investment assets.

At the same time, ninety-one percent of boomers plan to “age in place,” leaving them sitting on unused equity while struggling to live off insufficient retirement investments. Add the possibility of unexpected health care expenses, and boomers could find their investments quickly dissipating.

Looking Forward

For many boomers, a solution could lie in reverse mortgages, which allow borrowers to access a portion of their home equity without the financial drain of monthly mortgage loan payments.* The survey data suggests a significant number of boomers will need to do just that. How the FHA will respond to a spike in reverse mortgages remains to be seen.

*Homeowner is still responsible for taxes, insurance and property maintenance.